Optimistic Investors Push Swift Energy Technology Berhad (KLSE:SET) Shares Up 29% But Growth Is Lacking
Swift Energy Technology Berhad (KLSE:SET) shares have continued their recent momentum with a 29% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.
After such a large jump in price, Swift Energy Technology Berhad's price-to-earnings (or "P/E") ratio of 17.2x might make it look like a 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 elevated P/E.
With earnings growth that's exceedingly strong of late, Swift Energy Technology 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.
See our latest analysis for Swift Energy Technology Berhad
How Is Swift Energy Technology Berhad's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as high as Swift Energy Technology Berhad's is when the company's growth is on track to outshine the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 39% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 99% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's an unpleasant look.
In light of this, it's alarming that Swift Energy Technology Berhad's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
The Bottom Line On Swift Energy Technology Berhad's P/E
Swift Energy Technology Berhad's P/E is getting right up there since its shares have risen strongly. 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.
Our examination of Swift Energy Technology Berhad revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, 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.
Before you take the next step, you should know about the 2 warning signs for Swift Energy Technology Berhad that we have uncovered.
If you're unsure about the strength of Swift Energy Technology Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
About KLSE:SET
Swift Energy Technology Berhad
Provides industrial automation and power systems.
Excellent balance sheet with proven track record.
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