There's Reason For Concern Over BM GreenTech Berhad's (KLSE:BMGREEN) Massive 29% Price Jump

Despite an already strong run, BM GreenTech Berhad (KLSE:BMGREEN) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 138% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 17x, you may consider BM GreenTech Berhad as a stock to potentially avoid with its 24.9x P/E ratio. 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.

Recent times have been advantageous for BM GreenTech Berhad as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for BM GreenTech Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BM GreenTech Berhad.

Does Growth Match The High P/E?

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 139% last year. The strong recent performance means it was also able to grow EPS by 50% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 7.1% per annum over the next three years. That's shaping up to be similar to the 8.5% per year growth forecast for the broader market.

In light of this, it's curious that BM GreenTech Berhad's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On BM GreenTech Berhad's P/E

BM GreenTech Berhad's P/E is getting right up there since its shares have risen strongly. 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.

We've established that BM GreenTech Berhad currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for BM GreenTech Berhad with six simple checks will allow you to discover any risks that could be an issue.

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.