Perdana Petroleum Berhad's (KLSE:PERDANA) Shares Bounce 29% But Its Business Still Trails The Market

Despite an already strong run, Perdana Petroleum Berhad (KLSE:PERDANA) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 135% in the last year.

Although its price has surged higher, Perdana Petroleum Berhad may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.1x, since almost half of all companies in Malaysia have P/E ratios greater than 18x and even P/E's higher than 33x 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 limited.

Perdana Petroleum Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Perdana Petroleum Berhad

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Is There Any Growth For Perdana Petroleum Berhad?

Perdana Petroleum Berhad's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 246%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Perdana Petroleum Berhad is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Perdana Petroleum Berhad's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Perdana Petroleum Berhad maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Perdana Petroleum Berhad that you should be aware of.

Of course, you might also be able to find a better stock than Perdana Petroleum Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.