Leong Hup International Berhad's (KLSE:LHI) Shares Bounce 29% But Its Business Still Trails The Market

Leong Hup International Berhad (KLSE:LHI) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

Even after such a large jump in price, given about half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 16x, you may still consider Leong Hup International Berhad as an attractive investment with its 8x P/E ratio. 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 pleasing for Leong Hup International Berhad as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Leong Hup International Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Leong Hup International Berhad.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Leong Hup International Berhad would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 87%. The latest three year period has also seen an excellent 245% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 16% during the coming year according to the six analysts following the company. With the market predicted to deliver 15% growth , that's a disappointing outcome.

With this information, we are not surprised that Leong Hup International Berhad is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Leong Hup International Berhad's P/E

Despite Leong Hup International Berhad's shares building up a head of steam, its P/E still lags most other companies. 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 Leong Hup International Berhad maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Leong Hup International Berhad (including 1 which makes us a bit uncomfortable).

Of course, you might also be able to find a better stock than Leong Hup International 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.