There's No Escaping MNRB Holdings Berhad's (KLSE:MNRB) Muted Earnings Despite A 33% Share Price Rise

MNRB Holdings Berhad (KLSE:MNRB) shares have continued their recent momentum with a 33% gain in the last month alone. The annual gain comes to 152% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, MNRB Holdings Berhad's price-to-earnings (or "P/E") ratio of 4.5x might still make it look like a strong buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 18x and even P/E's above 31x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, MNRB Holdings Berhad has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for MNRB Holdings Berhad

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, MNRB Holdings Berhad would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 259%. Pleasingly, EPS has also lifted 126% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings growth is heading into negative territory, declining 54% over the next year. That's not great when the rest of the market is expected to grow by 17%.

With this information, we are not surprised that MNRB Holdings 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 Final Word

MNRB Holdings Berhad's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of MNRB Holdings Berhad's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - MNRB Holdings Berhad has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're unsure about the strength of MNRB Holdings Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.