Some Confidence Is Lacking In DPS Resources Berhad's (KLSE:DPS) P/E

With a median price-to-earnings (or "P/E") ratio of close to 14x in Malaysia, you could be forgiven for feeling indifferent about DPS Resources Berhad's (KLSE:DPS) P/E ratio of 15.5x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Our free stock report includes 4 warning signs investors should be aware of before investing in DPS Resources Berhad. Read for free now.

For instance, DPS Resources Berhad's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for DPS Resources 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 DPS Resources Berhad's earnings, revenue and cash flow.

How Is DPS Resources Berhad's Growth Trending?

The only time you'd be comfortable seeing a P/E like DPS Resources Berhad's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. As a result, earnings from three years ago have also fallen 58% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's an unpleasant look.

In light of this, it's somewhat alarming that DPS Resources Berhad's P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate 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 on the share price eventually.

The Key Takeaway

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 DPS Resources Berhad currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with DPS Resources Berhad (including 2 which are potentially serious).

You might be able to find a better investment than DPS Resources Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (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.