Optimax Holdings Berhad's (KLSE:OPTIMAX) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 71.8x Optimax Holdings Berhad (KLSE:OPTIMAX) may be sending very bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 17x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Optimax Holdings Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Optimax Holdings Berhad

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

Optimax Holdings Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 44%. 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 climb by 51% per year during the coming three years according to the one analyst following the company. With the market only predicted to deliver 13% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Optimax Holdings Berhad's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Optimax Holdings Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Optimax Holdings Berhad that you need to take into consideration.

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

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