MCE Holdings Berhad (KLSE:MCEHLDG) Held Back By Insufficient Growth Even After Shares Climb 28%

Despite an already strong run, MCE Holdings Berhad (KLSE:MCEHLDG) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, given about half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 16x, you may still consider MCE Holdings Berhad as an attractive investment with its 12.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

MCE Holdings Berhad certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for MCE Holdings Berhad

Keen to find out how analysts think MCE Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is MCE Holdings Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as MCE Holdings Berhad's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the covering the company suggest earnings should grow by 11% over the next year. With the market predicted to deliver 16% growth , the company is positioned for a weaker earnings result.

With this information, we can see why MCE Holdings Berhad is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite MCE Holdings Berhad's shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of MCE Holdings Berhad's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with MCE Holdings Berhad.

If you're unsure about the strength of MCE Holdings Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.