Jaya Tiasa Holdings Berhad (KLSE:JTIASA) Stock Catapults 25% Though Its Price And Business Still Lag The Market

The Jaya Tiasa Holdings Berhad (KLSE:JTIASA) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 85%.

Even after such a large jump in price, Jaya Tiasa Holdings Berhad's price-to-earnings (or "P/E") ratio of 6.3x might still make it look like a strong buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 16x and even P/E's above 28x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jaya Tiasa Holdings Berhad has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Jaya Tiasa Holdings Berhad

Keen to find out how analysts think Jaya Tiasa Holdings Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Jaya Tiasa Holdings Berhad?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jaya Tiasa Holdings Berhad's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 28% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 16% each year during the coming three years according to the sole analyst following the company. With the market predicted to deliver 9.8% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that Jaya Tiasa Holdings Berhad is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Jaya Tiasa Holdings Berhad's P/E?

Even after such a strong price move, Jaya Tiasa Holdings Berhad's P/E still trails the rest of the market significantly. 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.

As we suspected, our examination of Jaya Tiasa Holdings Berhad's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Jaya Tiasa Holdings Berhad (1 is concerning!) that we have uncovered.

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.