Supreme Consolidated Resources Berhad's (KLSE:SUPREME) Price Is Right But Growth Is Lacking After Shares Rocket 28%

Supreme Consolidated Resources Berhad (KLSE:SUPREME) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Supreme Consolidated Resources Berhad may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.5x, since almost half of all companies in Malaysia have P/E ratios greater than 14x and even P/E's higher than 25x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent earnings growth for Supreme Consolidated Resources Berhad has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Supreme Consolidated Resources Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Supreme Consolidated Resources Berhad.

Is There Any Growth For Supreme Consolidated Resources Berhad?

There's an inherent assumption that a company should underperform the market for P/E ratios like Supreme Consolidated Resources Berhad's to be considered reasonable.

Retrospectively, the last year delivered a decent 9.6% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 16% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 27% during the coming year according to the three analysts following the company. That's not great when the rest of the market is expected to grow by 16%.

In light of this, it's understandable that Supreme Consolidated Resources Berhad's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

The latest share price surge wasn't enough to lift Supreme Consolidated Resources Berhad's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Supreme Consolidated Resources Berhad maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Supreme Consolidated Resources Berhad is showing 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

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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.