Improved Earnings Required Before KPS Consortium Berhad (KLSE:KPSCB) Stock's 38% Jump Looks Justified

KPS Consortium Berhad (KLSE:KPSCB) shares have had a really impressive month, gaining 38% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.3% in the last twelve months.

Although its price has surged higher, KPS Consortium Berhad may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.6x, since almost half of all companies in Malaysia have P/E ratios greater than 14x and even P/E's higher than 25x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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As an illustration, earnings have deteriorated at KPS Consortium Berhad over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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 out of favour.

Check out our latest analysis for KPS Consortium Berhad

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on KPS Consortium Berhad's earnings, revenue and cash flow.

Is There Any Growth For KPS Consortium Berhad?

There's an inherent assumption that a company should far underperform the market for P/E ratios like KPS Consortium Berhad's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that KPS Consortium Berhad is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

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

KPS Consortium Berhad's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of KPS Consortium Berhad revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for KPS Consortium Berhad (1 shouldn't be ignored!) that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.