ACME Holdings Berhad (KLSE:ACME) Stock Catapults 29% Though Its Price And Business Still Lag The Market

ACME Holdings Berhad (KLSE:ACME) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 18% over that time.

In spite of the firm bounce in price, ACME Holdings Berhad may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.5x, since almost half of all companies in Malaysia have P/E ratios greater than 15x and even P/E's higher than 26x 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

For instance, ACME Holdings Berhad's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for ACME Holdings Berhad

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 ACME Holdings Berhad's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, ACME Holdings Berhad would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why ACME Holdings Berhad is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

ACME Holdings Berhad's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of ACME Holdings Berhad revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term 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 3 warning signs for ACME Holdings Berhad that we have uncovered.

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 low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.