Stock Analysis

The Price Is Right For CTOS Digital Berhad (KLSE:CTOS)

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When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider CTOS Digital Berhad (KLSE:CTOS) as a stock to avoid entirely with its 66.3x 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 so lofty.

Recent times haven't been advantageous for CTOS Digital Berhad as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for CTOS Digital Berhad

KLSE:CTOS Price Based on Past Earnings May 13th 2022
Keen to find out how analysts think CTOS Digital Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For CTOS Digital Berhad?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 12% last year. The latest three year period has also seen an excellent 40% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 29% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 16% per annum, which is noticeably less attractive.

With this information, we can see why CTOS Digital Berhad is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On CTOS Digital Berhad's 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 CTOS Digital Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, 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 these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for CTOS Digital Berhad that you need to be mindful of.

Of course, you might also be able to find a better stock than CTOS Digital Berhad. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether CTOS Digital Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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