What UUE Holdings Berhad's (KLSE:UUE) 27% Share Price Gain Is Not Telling You

Those holding UUE Holdings Berhad (KLSE:UUE) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. 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.

Since its price has surged higher, given around half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 14x, you may consider UUE Holdings Berhad as a stock to potentially avoid with its 19.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Our free stock report includes 2 warning signs investors should be aware of before investing in UUE Holdings Berhad. Read for free now.

Recent times have been advantageous for UUE Holdings Berhad as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for UUE Holdings Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on UUE Holdings Berhad.

What Are Growth Metrics Telling Us About The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 33%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 95% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the two analysts watching the company. That's shaping up to be similar to the 10% per year growth forecast for the broader market.

With this information, we find it interesting that UUE Holdings Berhad is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

The large bounce in UUE Holdings Berhad's shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that UUE Holdings Berhad currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for UUE Holdings Berhad (1 doesn't sit too well with us!) that you need to be mindful of.

Of course, you might also be able to find a better stock than UUE Holdings 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.