When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider PMB Technology Berhad (KLSE:PMBTECH) as a stock to avoid entirely with its 23.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
PMB Technology Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for PMB Technology Berhad
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How Is PMB Technology Berhad's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as PMB Technology Berhad's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company grew earnings per share by an impressive 252% last year. Pleasingly, EPS has also lifted 2,118% in aggregate from three years ago, thanks 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 that time.
Looking ahead now, EPS is anticipated to climb by 9.1% during the coming year according to the sole analyst following the company. With the market predicted to deliver 8.2% growth , the company is positioned for a comparable earnings result.
In light of this, it's curious that PMB Technology Berhad's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.
The Key Takeaway
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.
We've established that PMB Technology Berhad currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
We don't want to rain on the parade too much, but we did also find 2 warning signs for PMB Technology Berhad (1 is a bit unpleasant!) that you need to be mindful of.
If these risks are making you reconsider your opinion on PMB Technology Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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