SHH Resources Holdings Berhad (KLSE:SHH) Stock Rockets 30% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, SHH Resources Holdings Berhad (KLSE:SHH) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days bring the annual gain to a very sharp 28%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about SHH Resources Holdings Berhad's P/E ratio of 14.9x, since the median price-to-earnings (or "P/E") ratio in Malaysia is also close to 14x. 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.

The earnings growth achieved at SHH Resources Holdings Berhad over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for SHH Resources Holdings Berhad

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

Is There Some Growth For SHH Resources Holdings Berhad?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's curious that SHH Resources Holdings Berhad's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

SHH Resources Holdings Berhad appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 SHH Resources Holdings Berhad currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for SHH Resources Holdings Berhad (1 shouldn't be ignored!) 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 P/E ratio below 20x).

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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.