The Market Lifts Tex Cycle Technology (M) Berhad (KLSE:TEXCYCL) Shares 26% But It Can Do More

Tex Cycle Technology (M) Berhad (KLSE:TEXCYCL) shares have continued their recent momentum with a 26% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Tex Cycle Technology (M) Berhad's P/E ratio of 15.3x, since the median price-to-earnings (or "P/E") ratio in Malaysia is also close to 16x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's exceedingly strong of late, Tex Cycle Technology (M) Berhad has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Tex Cycle Technology (M) 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 Tex Cycle Technology (M) Berhad's earnings, revenue and cash flow.

How Is Tex Cycle Technology (M) Berhad's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Tex Cycle Technology (M) Berhad's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 65% last year. The latest three year period has also seen an excellent 367% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 17% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that Tex Cycle Technology (M) Berhad is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now Tex Cycle Technology (M) Berhad's P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Tex Cycle Technology (M) Berhad currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Tex Cycle Technology (M) Berhad that you should be aware of.

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.