Investors Appear Satisfied With Gamuda Berhad's (KLSE:GAMUDA) Prospects As Shares Rocket 25%

Those holding Gamuda Berhad (KLSE:GAMUDA) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

After such a large jump in price, Gamuda Berhad may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 27.8x, since almost half of all companies in Malaysia have P/E ratios under 13x and even P/E's lower than 8x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 1 warning sign investors should be aware of before investing in Gamuda Berhad. Read for free now.

Recent times haven't been advantageous for Gamuda Berhad as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Gamuda Berhad

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

How Is Gamuda Berhad's Growth Trending?

Gamuda Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Although pleasingly EPS has lifted 148% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 19% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 9.9% per annum growth forecast for the broader market.

With this information, we can see why Gamuda Berhad is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

The strong share price surge has got Gamuda Berhad's P/E rushing to great heights as well. 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.

We've established that Gamuda Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Gamuda Berhad you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.