Why We're Not Concerned About Dialog Group Berhad's (KLSE:DIALOG) Share Price

Explore Dialog Group Berhad's Fair Values from the Community and select yours

Dialog Group Berhad's (KLSE:DIALOG) price-to-earnings (or "P/E") ratio of 33.9x 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 13x and even P/E's below 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Dialog Group Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Dialog Group Berhad

Want the full picture on analyst estimates for the company? Then our free report on Dialog Group Berhad will help you uncover what's on the horizon.

Is There Enough Growth For Dialog Group Berhad?

Dialog Group Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 48%. As a result, earnings from three years ago have also fallen 44% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 75% during the coming year according to the analysts following the company. That's shaping up to be materially higher than the 14% growth forecast for the broader market.

In light of this, it's understandable that Dialog Group 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.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Dialog Group Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Dialog Group Berhad is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.