Market Participants Recognise Cabnet Holdings Berhad's (KLSE:CABNET) Earnings

Explore Cabnet Holdings Berhad's Fair Values from the Community and select yours

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 14x, you may consider Cabnet Holdings Berhad (KLSE:CABNET) as a stock to avoid entirely with its 28.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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For example, consider that Cabnet Holdings Berhad's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Cabnet Holdings 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 Cabnet Holdings Berhad's earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Cabnet Holdings 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 57%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 198% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 13% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Cabnet Holdings Berhad's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Cabnet Holdings Berhad's P/E

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.

We've established that Cabnet Holdings Berhad maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Cabnet Holdings Berhad that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.