When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider Matang Berhad (KLSE:MATANG) as a stock to avoid entirely with its 37.4x 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 so lofty.
Earnings have risen firmly for Matang Berhad recently, which is pleasing to see. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.
See our latest analysis for Matang Berhad
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 Matang Berhad's earnings, revenue and cash flow.
What Are Growth Metrics Telling Us About The High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Matang Berhad's is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 251% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Comparing that to the market, which is only predicted to deliver 8.0% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
With this information, we can see why Matang Berhad is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
What We Can Learn From Matang Berhad's P/E?
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Matang Berhad maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for Matang Berhad that you should be aware of.