Market Participants Recognise Cahya Mata Sarawak Berhad's (KLSE:CMSB) Earnings

Cahya Mata Sarawak Berhad's (KLSE:CMSB) price-to-earnings (or "P/E") ratio of 18.3x might make it look like a 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 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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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.

Check out our latest analysis for Cahya Mata Sarawak Berhad

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

Is There Enough Growth For Cahya Mata Sarawak Berhad?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. This means it has also seen a slide in earnings over the longer-term as EPS is down 63% in total over the last three years. 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. Meanwhile, the rest of the market is forecast to only expand by 12% per year, which is noticeably less attractive.

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?

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.

As we suspected, our examination of Cahya Mata Sarawak Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Cahya Mata Sarawak Berhad.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.