Optimistic Investors Push Kumpulan Perangsang Selangor Berhad (KLSE:KPS) Shares Up 32% But Growth Is Lacking

Kumpulan Perangsang Selangor Berhad (KLSE:KPS) shares have continued their recent momentum with a 32% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Kumpulan Perangsang Selangor Berhad's price-to-earnings (or "P/E") ratio of 20.7x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 19x. 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.

As an illustration, earnings have deteriorated at Kumpulan Perangsang Selangor Berhad over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Kumpulan Perangsang Selangor Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Kumpulan Perangsang Selangor Berhad will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The P/E?

Kumpulan Perangsang Selangor Berhad's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. The last three years don't look nice either as the company has shrunk EPS by 37% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 22% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Kumpulan Perangsang Selangor Berhad is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Kumpulan Perangsang Selangor Berhad's P/E?

Kumpulan Perangsang Selangor Berhad appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Kumpulan Perangsang Selangor Berhad currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 5 warning signs for Kumpulan Perangsang Selangor Berhad (2 are potentially serious!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Kumpulan Perangsang Selangor Berhad. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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