Risks Still Elevated At These Prices As Vinvest Capital Holdings Berhad (KLSE:VINVEST) Shares Dive 27%

To the annoyance of some shareholders, Vinvest Capital Holdings Berhad (KLSE:VINVEST) shares are down a considerable 27% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 75% share price decline.

Even after such a large drop in price, Vinvest Capital Holdings Berhad may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 60.2x, since almost half of all companies in Malaysia have P/E ratios under 15x and even P/E's lower than 9x are not unusual. 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 Vinvest Capital Holdings 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Vinvest Capital Holdings Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Vinvest Capital Holdings Berhad will help you shine a light on its historical performance.

Is There Enough Growth For Vinvest Capital Holdings Berhad?

Vinvest Capital Holdings Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 64%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Vinvest Capital Holdings Berhad is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates 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 Vinvest Capital Holdings Berhad's P/E

Even after such a strong price drop, Vinvest Capital Holdings Berhad's P/E still exceeds the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Vinvest Capital Holdings Berhad revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. 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.

Having said that, be aware Vinvest Capital Holdings Berhad is showing 5 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

You might be able to find a better investment than Vinvest Capital Holdings Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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.