Some Confidence Is Lacking In UMediC Group Berhad (KLSE:UMC) As Shares Slide 26%

UMediC Group Berhad (KLSE:UMC) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 42% in that time.

Even after such a large drop in price, there still wouldn't be many who think UMediC Group Berhad's price-to-earnings (or "P/E") ratio of 16.1x is worth a mention when the median P/E in Malaysia is similar at about 14x. 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.

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While the market has experienced earnings growth lately, UMediC Group Berhad's earnings have gone into reverse gear, which is not great. 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.

Check out our latest analysis for UMediC Group Berhad

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

How Is UMediC Group Berhad's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like UMediC 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 9.5%. This means it has also seen a slide in earnings over the longer-term as EPS is down 21% in total over the last three years. 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 4.7% per year during the coming three years according to the dual analysts following the company. That's shaping up to be materially lower than the 12% per year growth forecast for the broader market.

With this information, we find it interesting that UMediC Group Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From UMediC Group Berhad's P/E?

UMediC Group Berhad's plummeting stock price has brought its P/E right back to the rest of the market. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that UMediC Group Berhad currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for UMediC Group Berhad you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.