ARK Resources Holdings Berhad (KLSE:ARK) Surges 30% Yet Its Low P/E Is No Reason For Excitement

Explore ARK Resources Holdings Berhad's Fair Values from the Community and select yours

ARK Resources Holdings Berhad (KLSE:ARK) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Although its price has surged higher, ARK Resources Holdings Berhad may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.7x, since almost half of all companies in Malaysia have P/E ratios greater than 14x and even P/E's higher than 25x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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ARK Resources Holdings Berhad has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for ARK Resources Holdings 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 ARK Resources Holdings Berhad's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, ARK Resources Holdings Berhad would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.9%. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why ARK Resources Holdings Berhad is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From ARK Resources Holdings Berhad's P/E?

The latest share price surge wasn't enough to lift ARK Resources Holdings Berhad's P/E close to the market median. 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 ARK Resources Holdings Berhad maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for ARK Resources Holdings Berhad you should know about.

If these risks are making you reconsider your opinion on ARK Resources Holdings Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.