Supercomnet Technologies Berhad's (KLSE:SCOMNET) Earnings Haven't Escaped The Attention Of Investors

Supercomnet Technologies Berhad's (KLSE:SCOMNET) price-to-earnings (or "P/E") ratio of 51.8x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 15x and even P/E's below 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's exceedingly strong of late, Supercomnet Technologies Berhad has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Supercomnet Technologies Berhad

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Is There Enough Growth For Supercomnet Technologies Berhad?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 63% last year. The latest three year period has also seen an excellent 146% 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 3.2% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Supercomnet Technologies Berhad's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Supercomnet Technologies Berhad revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Supercomnet Technologies Berhad is showing 1 warning sign in our investment analysis, you should know about.

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This article by Simply Wall St is general in nature. 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.
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