Investors Still Waiting For A Pull Back In BM GreenTech Berhad (KLSE:BMGREEN)

With a price-to-earnings (or "P/E") ratio of 19.9x BM GreenTech Berhad (KLSE:BMGREEN) may be sending bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 16x and even P/E's lower than 10x 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 as high as it is.

With earnings growth that's superior to most other companies of late, BM GreenTech Berhad has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for BM GreenTech Berhad

Want the full picture on analyst estimates for the company? Then our free report on BM GreenTech Berhad will help you uncover what's on the horizon.

How Is BM GreenTech Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as BM GreenTech Berhad's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 174%. EPS has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 23% as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 17%, which is noticeably less attractive.

With this information, we can see why BM GreenTech Berhad is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From BM GreenTech Berhad's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of BM GreenTech Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for BM GreenTech Berhad with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than BM GreenTech Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.