With A 27% Price Drop For ECA Integrated Solution Berhad (KLSE:ECA) You'll Still Get What You Pay For

To the annoyance of some shareholders, ECA Integrated Solution Berhad (KLSE:ECA) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

In spite of the heavy fall in price, given around half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may still consider ECA Integrated Solution Berhad as a stock to potentially avoid with its 20.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, ECA Integrated Solution Berhad has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for ECA Integrated Solution Berhad

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

How Is ECA Integrated Solution Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as ECA Integrated Solution 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 managed to grow earnings per share by a handy 2.6% last year. Still, lamentably EPS has fallen 100% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 12% each year, which is noticeably less attractive.

With this information, we can see why ECA Integrated Solution 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.

The Key Takeaway

ECA Integrated Solution Berhad's P/E hasn't come down all the way after its stock plunged. 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 ECA Integrated Solution Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for ECA Integrated Solution Berhad (1 is a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of ECA Integrated Solution 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.