Why We're Not Concerned Yet About Comfort Gloves Berhad's (KLSE:COMFORT) 28% Share Price Plunge

Comfort Gloves Berhad (KLSE:COMFORT) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 334%.

Even after such a large drop in price, Comfort Gloves Berhad's price-to-earnings (or "P/E") ratio of 26.1x might still 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 18x and even P/E's below 12x 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.

Recent times have been pleasing for Comfort Gloves Berhad as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Comfort Gloves Berhad

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

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 131%. Pleasingly, EPS has also lifted 106% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 48% per year during the coming three years according to the sole analyst following the company. That's shaping up to be materially higher than the 18% each year growth forecast for the broader market.

With this information, we can see why Comfort Gloves Berhad is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Comfort Gloves Berhad's P/E?

Comfort Gloves Berhad's P/E hasn't come down all the way after its stock plunged. 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.

As we suspected, our examination of Comfort Gloves 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.

Before you settle on your opinion, we've discovered 1 warning sign for Comfort Gloves Berhad that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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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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