Malayan Cement Berhad's (KLSE:MCEMENT) Business Is Trailing The Market But Its Shares Aren't

With a median price-to-earnings (or "P/E") ratio of close to 15x in Malaysia, you could be forgiven for feeling indifferent about Malayan Cement Berhad's (KLSE:MCEMENT) P/E ratio of 13.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Malayan Cement Berhad has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Malayan Cement Berhad

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

Does Growth Match The P/E?

In order to justify its P/E ratio, Malayan Cement Berhad would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 84% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 6.2% per year as estimated by the five analysts watching the company. With the market predicted to deliver 13% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Malayan Cement Berhad's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Our examination of Malayan Cement Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Malayan Cement Berhad that you need to be mindful of.

Of course, you might also be able to find a better stock than Malayan Cement Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.