When nearly half of Singapore’s companies have price-to-earnings (or “P/E”) ratios below 11x, you might want to consider AMTD IDEA Group (SGX:HKB) as a stock to avoid entirely with its P/E ratio of 20.3x. However, the P/E may be quite high for a reason and it requires further investigation to determine if it is warranted.

AMTD IDEA Group has been doing a good job lately as its profits have grown at a steady pace. Many may expect the respectable earnings performance to outperform most other companies in the period ahead, which has increased investors’ willingness to pay for the stock. Otherwise, existing shareholders might be a little worried about the viability of the share price.

Check out our latest analysis for AMTD IDEA Group

We don’t have analyst forecasts, but you can see how recent trends are preparing the company for the future by checking out our free AMTD IDEA Group earnings, revenue and cash flow report.

What do the growth indicators tell us about the high P/E?

There is an inherent assumption that a company would have to significantly outperform the market for P/E ratios like that of AMTD IDEA Group to be considered reasonable.

Looking back first, we see that the company managed to increase its earnings per share by 11% last year. Fortunately, EPS was also up 52% ​​overall from three years ago, thanks in part to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over this period.

Comparing that to the market, which is only expected to grow 8.4% over the next 12 months, the company’s momentum is stronger based on recent mid-term annualized results.

With this information, we can understand why AMTD IDEA Group is trading at such a high P/E relative to the market. Presumably, shareholders don’t want to offload something they believe will continue to outsmart the stock market.

The last word

It’s not a good idea to use the price-earnings ratio alone to determine whether you should sell your shares, but it can be a handy guide to the company’s future prospects.

We have established that AMTD IDEA Group maintains its high P/E thanks to its recent three-year growth above broader market expectations, as expected. At this point, investors believe that the potential for earnings deterioration is not large enough to warrant a lower P/E ratio. If recent medium-term earnings trends continue, it is difficult to see the stock price falling sharply in the near future under these circumstances.

You should always take note of the risks, for example – AMTD IDEA Group has 1 warning sign we think you should know.

Sure, you might also be able to find better stock than AMTD IDEA Group. So you might want to see this free collection of other companies with P/Es less than 20x and strong earnings growth.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.