It's not a stretch to say that Baker Technology Limited's (SGX:BTP) price-to-earnings (or "P/E") ratio of 9.2x right now seems quite "middle-of-the-road" compared to the market in Singapore, where the median P/E ratio is around 11x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Baker Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Check out our latest analysis for Baker Technology
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Baker Technology's earnings, revenue and cash flow.
Is There Some Growth For Baker Technology?
The only time you'd be comfortable seeing a P/E like Baker Technology's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company grew earnings per share by an impressive 128% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Comparing that to the market, which is predicted to deliver 4.4% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
With this information, we find it interesting that Baker Technology is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
What We Can Learn From Baker Technology's P/E?
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Baker Technology revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.