Stock Analysis

Choo Bee Metal Industries Berhad's (KLSE:CHOOBEE) Price Is Out Of Tune With Earnings

KLSE:CHOOBEE
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There wouldn't be many who think Choo Bee Metal Industries Berhad's (KLSE:CHOOBEE) price-to-earnings (or "P/E") ratio of 20.1x is worth a mention when the median P/E in Malaysia is similar at about 19x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's exceedingly strong of late, Choo Bee Metal Industries Berhad has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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.

View our latest analysis for Choo Bee Metal Industries Berhad

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KLSE:CHOOBEE Price Based on Past Earnings November 22nd 2020
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Choo Bee Metal Industries Berhad will help you shine a light on its historical performance.

Is There Some Growth For Choo Bee Metal Industries Berhad?

There's an inherent assumption that a company should be matching the market for P/E ratios like Choo Bee Metal Industries Berhad's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 194%. Still, incredibly EPS has fallen 81% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Choo Bee Metal Industries Berhad is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

What We Can Learn From Choo Bee Metal Industries Berhad's P/E?

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.

Our examination of Choo Bee Metal Industries Berhad revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Choo Bee Metal Industries Berhad (1 can't be ignored) you should be aware of.

Of course, you might also be able to find a better stock than Choo Bee Metal Industries Berhad. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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Valuation is complex, but we're helping make it simple.

Find out whether Choo Bee Metal Industries Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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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