HPP Holdings Berhad's (KLSE:HPPHB) P/E Is Still On The Mark Following 28% Share Price Bounce

HPP Holdings Berhad (KLSE:HPPHB) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 2.5% isn't as attractive.

After such a large jump in price, given around half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 14x, you may consider HPP Holdings Berhad as a stock to potentially avoid with its 17.1x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for HPP Holdings Berhad has been in line with the market. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for HPP Holdings Berhad

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How Is HPP Holdings Berhad's Growth Trending?

HPP Holdings Berhad's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10%. The latest three year period has also seen a 13% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 24% per annum as estimated by the three analysts watching the company. With the market only predicted to deliver 9.6% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why HPP Holdings 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 HPP Holdings Berhad's P/E?

HPP Holdings Berhad's P/E is getting right up there since its shares have risen strongly. 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 HPP Holdings 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. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for HPP Holdings Berhad you should know about.

If you're unsure about the strength of HPP Holdings Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.