Sin Heng Chan (Malaya) Berhad (KLSE:SHCHAN) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Sin Heng Chan (Malaya) Berhad (KLSE:SHCHAN) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 84%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Sin Heng Chan (Malaya) Berhad's P/E ratio of 20.2x, since the median price-to-earnings (or "P/E") ratio in Malaysia is also close to 20x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Sin Heng Chan (Malaya) Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.

Check out our latest analysis for Sin Heng Chan (Malaya) Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sin Heng Chan (Malaya) Berhad will help you shine a light on its historical performance.

How Is Sin Heng Chan (Malaya) Berhad's Growth Trending?

Sin Heng Chan (Malaya) Berhad's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 36%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that Sin Heng Chan (Malaya) Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Sin Heng Chan (Malaya) Berhad's P/E?

Sin Heng Chan (Malaya) Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Sin Heng Chan (Malaya) Berhad currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - Sin Heng Chan (Malaya) Berhad has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

You might be able to find a better investment than Sin Heng Chan (Malaya) Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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