D'nonce Technology Bhd. (KLSE:DNONCE) Stock's 29% Dive Might Signal An Opportunity But It Requires Some Scrutiny

D'nonce Technology Bhd. (KLSE:DNONCE) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 42% share price drop.

Since its price has dipped substantially, D'nonce Technology Bhd may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.8x, since almost half of all companies in Malaysia have P/E ratios greater than 16x and even P/E's higher than 29x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, D'nonce Technology Bhd has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for D'nonce Technology Bhd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on D'nonce Technology Bhd's earnings, revenue and cash flow.

Is There Any Growth For D'nonce Technology Bhd?

There's an inherent assumption that a company should underperform the market for P/E ratios like D'nonce Technology Bhd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 212% gain to the company's bottom line. The latest three year period has also seen an excellent 183% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that D'nonce Technology Bhd's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

D'nonce Technology Bhd's recently weak share price has pulled its P/E below most other companies. 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 D'nonce Technology Bhd revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - D'nonce Technology Bhd has 3 warning signs we think you should be aware of.

You might be able to find a better investment than D'nonce Technology Bhd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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