The Market Lifts Cahya Mata Sarawak Berhad (KLSE:CMSB) Shares 26% But It Can Do More

Despite an already strong run, Cahya Mata Sarawak Berhad (KLSE:CMSB) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 34%.

In spite of the firm bounce in price, Cahya Mata Sarawak Berhad's price-to-earnings (or "P/E") ratio of 13.9x might still make it look like a 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 34x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Cahya Mata Sarawak Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Cahya Mata Sarawak Berhad

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Is There Any Growth For Cahya Mata Sarawak Berhad?

In order to justify its P/E ratio, Cahya Mata Sarawak Berhad would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 57% decrease to the company's bottom line. Even so, admirably EPS has lifted 100% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 15% per year during the coming three years according to the four analysts following the company. That's shaping up to be similar to the 13% each year growth forecast for the broader market.

With this information, we find it odd that Cahya Mata Sarawak Berhad is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

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

The latest share price surge wasn't enough to lift Cahya Mata Sarawak Berhad's P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Cahya Mata Sarawak Berhad currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Before you take the next step, you should know about the 1 warning sign for Cahya Mata Sarawak Berhad that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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