The Price Is Right For Eco-Shop Marketing Berhad (KLSE:ECOSHOP)

Eco-Shop Marketing Berhad's (KLSE:ECOSHOP) price-to-earnings (or "P/E") ratio of 37.4x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 14x and even P/E's below 8x are quite common. 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.

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Eco-Shop Marketing Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Eco-Shop Marketing Berhad

Keen to find out how analysts think Eco-Shop Marketing Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Eco-Shop Marketing Berhad's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Eco-Shop Marketing Berhad's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 15% gain to the company's bottom line. Pleasingly, EPS has also lifted 607% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 19% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 11% per annum, which is noticeably less attractive.

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

What We Can Learn From Eco-Shop Marketing Berhad's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Eco-Shop Marketing 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Eco-Shop Marketing Berhad with six simple checks on some of these key factors.

If you're unsure about the strength of Eco-Shop Marketing Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.