CCK Consolidated Holdings Berhad's (KLSE:CCK) Shares Bounce 39% But Its Business Still Trails The Market

Despite an already strong run, CCK Consolidated Holdings Berhad (KLSE:CCK) shares have been powering on, with a gain of 39% in the last thirty days. The last month tops off a massive increase of 104% in the last year.

In spite of the firm bounce in price, CCK Consolidated Holdings Berhad's price-to-earnings (or "P/E") ratio of 11.2x might still make it look like a buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 18x and even P/E's above 32x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for CCK Consolidated Holdings Berhad as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for CCK Consolidated Holdings Berhad

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What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as CCK Consolidated Holdings Berhad's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 32%. Pleasingly, EPS has also lifted 124% 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 two analysts covering the company suggest earnings should grow by 3.0% per year over the next three years. That's shaping up to be materially lower than the 12% each year growth forecast for the broader market.

With this information, we can see why CCK Consolidated Holdings Berhad is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On CCK Consolidated Holdings Berhad's P/E

The latest share price surge wasn't enough to lift CCK Consolidated Holdings Berhad's P/E close to the market median. 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 CCK Consolidated Holdings Berhad's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for CCK Consolidated Holdings Berhad that you should be aware of.

Of course, you might also be able to find a better stock than CCK Consolidated Holdings 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.