Protasco Berhad's (KLSE:PRTASCO) Price Is Right But Growth Is Lacking After Shares Rocket 28%

Protasco Berhad (KLSE:PRTASCO) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.1% in the last twelve months.

In spite of the firm bounce in price, given about half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Protasco Berhad as a highly attractive investment with its 2.3x 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 limited.

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Protasco Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

How Is Protasco Berhad's Growth Trending?

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.

If we review the last year of earnings growth, the company posted a terrific increase of 188%. The strong recent performance means it was also able to grow EPS by 4,553% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 22% as estimated by the one analyst watching the company. Meanwhile, the broader market is forecast to expand by 17%, which paints a poor picture.

With this information, we are not surprised that Protasco Berhad is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

As we suspected, our examination of Protasco Berhad's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Protasco Berhad is showing 2 warning signs in our investment analysis, and 1 of those is significant.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.