Southern Cable Group Berhad (KLSE:SCGBHD) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected

Southern Cable Group Berhad (KLSE:SCGBHD) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 92% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Southern Cable Group Berhad's price-to-earnings (or "P/E") ratio of 15x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Our free stock report includes 3 warning signs investors should be aware of before investing in Southern Cable Group Berhad. Read for free now.

Southern Cable Group Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Southern Cable Group Berhad

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

Is There Some Growth For Southern Cable Group Berhad?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 134% last year. The strong recent performance means it was also able to grow EPS by 472% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 5.8% per year during the coming three years according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 10.0% per annum, which is noticeably more attractive.

With this information, we find it interesting that Southern Cable Group Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Southern Cable Group Berhad's P/E

Southern Cable Group Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Southern Cable Group Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Southern Cable Group Berhad is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

Of course, you might also be able to find a better stock than Southern Cable Group Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.