Further Upside For Bina Darulaman Berhad (KLSE:BDB) Shares Could Introduce Price Risks After 27% Bounce

The Bina Darulaman Berhad (KLSE:BDB) share price has done very well over the last month, posting an excellent gain of 27%. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

Even after such a large jump in price, Bina Darulaman Berhad may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.5x, since almost half of all companies in Malaysia have P/E ratios greater than 16x and even P/E's higher than 29x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's exceedingly strong of late, Bina Darulaman Berhad has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Bina Darulaman 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 Bina Darulaman Berhad's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 126% last year. The latest three year period has also seen an excellent 139% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 17% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Bina Darulaman Berhad is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Bina Darulaman Berhad's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Bina Darulaman Berhad revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Bina Darulaman Berhad has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.