Eversendai Corporation Berhad's (KLSE:SENDAI) 28% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

Eversendai Corporation Berhad (KLSE:SENDAI) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The last month has meant the stock is now only up 5.1% during the last year.

Even after such a large drop in price, Eversendai Corporation Berhad's price-to-earnings (or "P/E") ratio of 22.7x might still 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 13x and even P/E's below 8x 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.

As an illustration, earnings have deteriorated at Eversendai Corporation Berhad over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Eversendai Corporation Berhad

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Eversendai Corporation Berhad's earnings, revenue and cash flow.

How Is Eversendai Corporation Berhad's Growth Trending?

In order to justify its P/E ratio, Eversendai Corporation Berhad would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 47%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 16% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Eversendai Corporation Berhad's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Eversendai Corporation Berhad's P/E?

A significant share price dive has done very little to deflate Eversendai Corporation Berhad's very lofty P/E. 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.

We've established that Eversendai Corporation Berhad currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Eversendai Corporation Berhad (at least 1 which is potentially serious), and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Eversendai Corporation 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.