Eupe Corporation Berhad's (KLSE:EUPE) Shares Bounce 63% But Its Business Still Trails The Market

Despite an already strong run, Eupe Corporation Berhad (KLSE:EUPE) shares have been powering on, with a gain of 63% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 87% in the last year.

In spite of the firm bounce in price, Eupe Corporation Berhad's price-to-earnings (or "P/E") ratio of 6.5x 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 17x and even P/E's above 30x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Eupe Corporation Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Eupe Corporation Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Eupe Corporation Berhad will help you shine a light on its historical performance.

Is There Any Growth For Eupe Corporation Berhad?

The only time you'd be truly comfortable seeing a P/E as depressed as Eupe Corporation Berhad's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 35%. However, this wasn't enough as the latest three year period has seen a very unpleasant 26% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 17% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that Eupe Corporation Berhad is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Eupe Corporation Berhad's P/E

Shares in Eupe Corporation Berhad are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

We've established that Eupe Corporation Berhad maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Eupe Corporation Berhad (1 is a bit unpleasant) you should be aware of.

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.