Cahya Mata Sarawak Berhad's (KLSE:CMSB) 27% Jump Shows Its Popularity With Investors

The Cahya Mata Sarawak Berhad (KLSE:CMSB) share price has done very well over the last month, posting an excellent gain of 27%. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, Cahya Mata Sarawak Berhad's price-to-earnings (or "P/E") ratio of 24.2x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 14x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Cahya Mata Sarawak Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Cahya Mata Sarawak Berhad

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Is There Enough Growth For Cahya Mata Sarawak Berhad?

The only time you'd be truly comfortable seeing a P/E as steep as Cahya Mata Sarawak Berhad's is when the company's growth is on track to outshine the market decidedly.

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 40%. As a result, earnings from three years ago have also fallen 63% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 36% per annum during the coming three years according to the dual analysts following the company. With the market only predicted to deliver 12% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Cahya Mata Sarawak Berhad is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Cahya Mata Sarawak Berhad's P/E?

The strong share price surge has got Cahya Mata Sarawak Berhad's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Cahya Mata Sarawak Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Cahya Mata Sarawak Berhad is showing 1 warning sign in our investment analysis, you should know about.

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

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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.