Earnings Not Telling The Story For Malaysian Resources Corporation Berhad (KLSE:MRCB) After Shares Rise 26%

Malaysian Resources Corporation Berhad (KLSE:MRCB) shareholders have had their patience rewarded with a 26% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 16% over that time.

Following the firm bounce in price, Malaysian Resources Corporation Berhad may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 36.4x, 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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While the market has experienced earnings growth lately, Malaysian Resources Corporation Berhad's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Malaysian Resources Corporation Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Malaysian Resources Corporation Berhad.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Malaysian Resources Corporation Berhad's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. Even so, admirably EPS has lifted 180% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 5.2% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 12% per annum growth forecast for the broader market.

In light of this, it's alarming that Malaysian Resources Corporation Berhad's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Malaysian Resources Corporation Berhad's P/E

Shares in Malaysian Resources Corporation Berhad have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Malaysian Resources Corporation Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Malaysian Resources Corporation Berhad that you need to be mindful of.

You might be able to find a better investment than Malaysian Resources Corporation Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.