Southern Cable Group Berhad's (KLSE:SCGBHD) 27% Share Price Surge Not Quite Adding Up

Southern Cable Group Berhad (KLSE:SCGBHD) shareholders have had their patience rewarded with a 27% share price jump in the last month. The annual gain comes to 184% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that Southern Cable Group Berhad's price-to-earnings (or "P/E") ratio of 15.5x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 15x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Southern Cable Group Berhad has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

Check out our latest analysis for Southern Cable Group Berhad

Want the full picture on analyst estimates for the company? Then our free report on Southern Cable Group Berhad will help you uncover what's on the horizon.

How Is Southern Cable Group Berhad's Growth Trending?

The only time you'd be comfortable seeing a P/E like Southern Cable Group Berhad's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 171%. Pleasingly, EPS has also lifted 404% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings growth is heading into negative territory, declining 21% over the next year. That's not great when the rest of the market is expected to grow by 17%.

With this information, we find it concerning that Southern Cable Group Berhad is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Key Takeaway

Southern Cable Group Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Southern Cable Group Berhad's analyst forecasts revealed that its outlook for shrinking earnings 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 are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Southern Cable Group Berhad that you need to be mindful of.

You might be able to find a better investment than Southern Cable Group 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.