KUB Malaysia Berhad (KLSE:KUB) Stock Rockets 42% As Investors Are Less Pessimistic Than Expected

KUB Malaysia Berhad (KLSE:KUB) shares have continued their recent momentum with a 42% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

Following the firm bounce in price, KUB Malaysia Berhad may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 22.9x, since almost half of all companies in Malaysia have P/E ratios under 14x and even P/E's lower than 9x are not unusual. 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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As an illustration, earnings have deteriorated at KUB Malaysia Berhad over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for KUB Malaysia Berhad

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

Does Growth Match The High P/E?

In order to justify its P/E ratio, KUB Malaysia Berhad would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. Still, the latest three year period has seen an excellent 45% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Comparing that to the market, which is predicted to deliver 16% 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 alarming that KUB Malaysia Berhad's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On KUB Malaysia Berhad's P/E

The strong share price surge has got KUB Malaysia Berhad's P/E rushing to great heights as well. 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.

Our examination of KUB Malaysia Berhad revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 4 warning signs for KUB Malaysia Berhad (of which 1 is concerning!) you should know about.

If you're unsure about the strength of KUB Malaysia 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.