Market Still Lacking Some Conviction On UEM Edgenta Berhad (KLSE:EDGENTA)

With a median price-to-earnings (or "P/E") ratio of close to 13x in Malaysia, you could be forgiven for feeling indifferent about UEM Edgenta Berhad's (KLSE:EDGENTA) P/E ratio of 11.6x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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With earnings growth that's superior to most other companies of late, UEM Edgenta Berhad has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for UEM Edgenta Berhad

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Is There Some Growth For UEM Edgenta Berhad?

The only time you'd be comfortable seeing a P/E like UEM Edgenta Berhad's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 66% gain to the company's bottom line. The latest three year period has also seen a 23% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 17% each year during the coming three years according to the only analyst following the company. That's shaping up to be materially higher than the 9.5% each year growth forecast for the broader market.

With this information, we find it interesting that UEM Edgenta Berhad is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that UEM Edgenta Berhad currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for UEM Edgenta Berhad you should know about.

Of course, you might also be able to find a better stock than UEM Edgenta 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.