Investors Still Aren't Entirely Convinced By Eastern & Oriental Berhad's (KLSE:E&O) Earnings Despite 28% Price Jump

Eastern & Oriental Berhad (KLSE:E&O) shareholders have had their patience rewarded with a 28% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.4% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Eastern & Oriental Berhad's price-to-earnings (or "P/E") ratio of 15x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 15x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Eastern & Oriental Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Eastern & Oriental Berhad

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

How Is Eastern & Oriental Berhad's Growth Trending?

Eastern & Oriental Berhad's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 31%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. 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 25% per annum as estimated by the sole analyst watching the company. With the market only predicted to deliver 9.1% per annum, the company is positioned for a stronger earnings result.

In light of this, it's curious that Eastern & Oriental Berhad's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Eastern & Oriental Berhad appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Eastern & Oriental Berhad's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Eastern & Oriental Berhad (at least 1 which is potentially serious), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.