The Market Lifts PGF Capital Berhad (KLSE:PGF) Shares 29% But It Can Do More

Despite an already strong run, PGF Capital Berhad (KLSE:PGF) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about PGF Capital Berhad's P/E ratio of 16.9x, since the median price-to-earnings (or "P/E") ratio in Malaysia is also close to 16x. 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.

Recent times have been quite advantageous for PGF Capital Berhad as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for PGF Capital Berhad

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

Is There Some Growth For PGF Capital Berhad?

In order to justify its P/E ratio, PGF Capital Berhad would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 42%. The latest three year period has also seen an excellent 178% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that PGF Capital Berhad is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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

PGF Capital Berhad appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

Our examination of PGF Capital Berhad revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with PGF Capital Berhad, and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on PGF Capital Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.