Earnings Not Telling The Story For Johor Plantations Group Berhad (KLSE:JPG) After Shares Rise 29%

Despite an already strong run, Johor Plantations Group Berhad (KLSE:JPG) shares have been powering on, with a gain of 29% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, there still wouldn't be many who think Johor Plantations Group Berhad's price-to-earnings (or "P/E") ratio of 13.9x is worth a mention when the median P/E in Malaysia is similar at about 16x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Johor Plantations Group Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Johor Plantations Group Berhad

Keen to find out how analysts think Johor Plantations Group Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For Johor Plantations Group Berhad?

There's an inherent assumption that a company should be matching the market for P/E ratios like Johor Plantations Group Berhad's to be considered reasonable.

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 15%. As a result, earnings from three years ago have also fallen 99% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 4.3% per year during the coming three years according to the four analysts following the company. That's not great when the rest of the market is expected to grow by 13% per annum.

In light of this, it's somewhat alarming that Johor Plantations Group Berhad's P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Bottom Line On Johor Plantations Group Berhad's P/E

Johor Plantations Group Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Johor Plantations Group Berhad's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Johor Plantations Group Berhad with six simple checks.

If these risks are making you reconsider your opinion on Johor Plantations Group Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.