With a price-to-earnings (or "P/E") ratio of 22.5x Bursa Malaysia Berhad (KLSE:BURSA) may be sending bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 15x and even P/E's lower than 9x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Bursa Malaysia Berhad has been doing a reasonable job lately as its earnings haven't declined as much as most other companies. It seems that many are expecting the comparatively superior earnings performance to persist, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price, especially if earnings continue to dissolve.

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Is There Enough Growth For Bursa Malaysia Berhad?

The only time you'd be truly comfortable seeing a P/E as high as Bursa Malaysia Berhad's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 24% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 1.3% during the coming year according to the analysts following the company. With the market predicted to deliver 15% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that Bursa Malaysia Berhad's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Bursa Malaysia Berhad's P/E

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.

We've established that Bursa Malaysia Berhad currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.