When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 10x, you may consider Aspial Lifestyle Limited (Catalist:5UF) as a stock to potentially avoid with its 13.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

For example, consider that Aspial Lifestyle's financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Aspial Lifestyle

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Aspial Lifestyle will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Aspial Lifestyle's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 43%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 10% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

In contrast to the company, the rest of the market is expected to decline by 2.9% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's understandable that Aspial Lifestyle's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Aspial Lifestyle revealed its growing earnings over the medium-term are contributing to its high P/E, given the market is set to shrink. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader market turmoil. Otherwise, it's hard to see the share price falling strongly in the near future if its earnings performance persists.

It is also worth noting that we have found 4 warning signs for Aspial Lifestyle (1 is concerning!) that you need to take into consideration.

You might be able to find a better investment than Aspial Lifestyle. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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