With a price-to-earnings (or “P/E”) ratio of 40x Mr. D Group (M) Berhad (KLSE: MRDIY) might send very bearish signals right now, given that nearly half of all companies in Malaysia have P/E ratios of less than 12x and even a P/E of less than 7x isn’t unusual. However, the P/E may be too high for some reason and requires further investigation to determine if it is justified.
While the market has seen earnings growth recently, Mr. DIY Group (M) Berhad’s earnings have turned in the opposite direction, which is not good. One possibility is that the P/E is high because investors think this poor earnings performance will reverse. If not, existing shareholders may be very concerned about the viability of the share price.
If you want to know what analysts predict in the future, you should check out Free Report on Mr. DIY Group (M) Berhad.
What growth metrics tell us about a high P/E?
DIY Group (M) Berhad’s price-to-earnings ratio would be typical for a company expected to deliver very strong growth and, more importantly, outperform the market.
Looking back first, the company’s earnings growth last year was nothing to get excited about as it posted a disappointing 66% decline. However, EPS is up an impressive 48% in total from where it was three years ago, despite the past 12 months. Although it’s been a bumpy ride, it’s still fair to say that earnings growth recently has been more than enough for the company.
Moving on to forecasts, next year is expected to deliver 24% growth as estimated by analysts who monitor the company. This is shaping up to be materially above the 9.2% growth forecast for the broader market.
In light of this, it is understandable that the P/E of Mr. DIY Group (M) Berhad is ahead of the majority of other companies. Clearly, shareholders aren’t keen on getting rid of something that has the potential to look forward to a more prosperous future.
The main takeaway
Usually, we caution against reading too much into P/E ratios when making an investment decision, even though it can reveal a lot about what other market participants think of a company.
As we expected, our examination of analyst forecasts for Mr. DIY Group (M) Berhad revealed that its superior earnings outlook is contributing to the higher price-to-earnings ratio. At this point, investors feel that the potential for a deterioration in earnings is not great enough to justify a lower price-to-earnings ratio. Unless these conditions change, they will continue to provide strong support for the share price.
A company’s balance sheet is another key area of risk analysis. You can assess several major risks through our website Free Balance Sheet Analysis Mr. DIY Group (M) Berhad With six simple checks.
if I were I’m not sure about the strength of Mr. DIY Group (M) Berhad’s businessWhy don’t you explore Our interactive stock list with strong business fundamentals For some other companies you may have missed.
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This article written by Simply Wall St is general in nature. We provide comments based on historical data and analyst predictions 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 it does not take into account your objectives or financial situation. We aim to provide you with focused, long-term analysis driven by fundamental data. Note that our analysis may not include the company’s most recent price-sensitive announcements or specific materials. Wall Street simply has no position in any of the stocks mentioned.
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