Why We're Not Concerned About Supercomnet Technologies Berhad's (KLSE:SCOMNET) Share Price

Supercomnet Technologies Berhad's (KLSE:SCOMNET) price-to-earnings (or "P/E") ratio of 44.6x 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been quite advantageous for Supercomnet Technologies Berhad as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See 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 strong recent performance means it was also able to grow EPS by 146% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 2.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Supercomnet Technologies Berhad is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Supercomnet Technologies Berhad's P/E

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Supercomnet Technologies Berhad that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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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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