Market Participants Recognise Pentamaster Corporation Berhad's (KLSE:PENTA) Earnings Pushing Shares 30% Higher

Pentamaster Corporation Berhad (KLSE:PENTA) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 39% over that time.

After such a large jump in price, given close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider Pentamaster Corporation Berhad as a stock to avoid entirely with its 29.3x P/E ratio. 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.

We've discovered 1 warning sign about Pentamaster Corporation Berhad. View them for free.

Pentamaster Corporation Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Pentamaster Corporation Berhad

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

How Is Pentamaster Corporation Berhad's Growth Trending?

In order to justify its P/E ratio, Pentamaster Corporation Berhad would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 27%. As a result, earnings from three years ago have also fallen 10% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 23% per annum over the next three years. That's shaping up to be materially higher than the 10.0% per year growth forecast for the broader market.

In light of this, it's understandable that Pentamaster Corporation Berhad's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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

As we suspected, our examination of Pentamaster Corporation Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Pentamaster Corporation Berhad, and understanding should be part of your investment process.

You might be able to find a better investment than Pentamaster 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.