Market Might Still Lack Some Conviction On Protasco Berhad (KLSE:PRTASCO) Even After 26% Share Price Boost

Protasco Berhad (KLSE:PRTASCO) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.8% in the last twelve months.

Even after such a large jump in price, Protasco Berhad may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.4x, 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

We've discovered 2 warning signs about Protasco Berhad. View them for free.

With earnings growth that's superior to most other companies of late, Protasco Berhad has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for Protasco Berhad

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

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

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

Taking a look back first, we see that the company grew earnings per share by an impressive 291% last year. The latest three year period has also seen an excellent 57% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 35% over the next year. Meanwhile, the rest of the market is forecast to only expand by 16%, which is noticeably less attractive.

In light of this, it's peculiar that Protasco Berhad's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Protasco Berhad's P/E

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

We've established that Protasco Berhad currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Protasco Berhad that you need to take into consideration.

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.