What Is Eastern & Oriental Berhad's (KLSE:E&O) Share Price Doing?

Eastern & Oriental Berhad (KLSE:E&O), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the KLSE. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Eastern & Oriental Berhad’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Eastern & Oriental Berhad

Is Eastern & Oriental Berhad Still Cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Eastern & Oriental Berhad’s ratio of 12.33x is trading slightly above its industry peers’ ratio of 11.79x, which means if you buy Eastern & Oriental Berhad today, you’d be paying a relatively reasonable price for it. And if you believe Eastern & Oriental Berhad should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Furthermore, Eastern & Oriental Berhad’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Eastern & Oriental Berhad?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 82% over the next couple of years, the future seems bright for Eastern & Oriental Berhad. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in E&O’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at E&O? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on E&O, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for E&O, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 3 warning signs for Eastern & Oriental Berhad (1 is significant!) that we believe deserve your full attention.

If you are no longer interested in Eastern & Oriental Berhad, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.