Some Mah Sing Group Berhad (KLSE:MAHSING) Shareholders Look For Exit As Shares Take 26% Pounding

Mah Sing Group Berhad (KLSE:MAHSING) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 54% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Mah Sing Group Berhad's price-to-earnings (or "P/E") ratio of 14.5x is worth a mention when the median P/E in Malaysia is similar at about 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for Mah Sing Group Berhad as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Mah Sing Group Berhad

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

How Is Mah Sing Group Berhad's Growth Trending?

In order to justify its P/E ratio, Mah Sing Group 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 21% last year. The latest three year period has also seen an excellent 150% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 13% over the next year. Meanwhile, the rest of the market is forecast to expand by 17%, which is noticeably more attractive.

With this information, we find it interesting that Mah Sing Group Berhad is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

Mah Sing Group Berhad's plummeting stock price has brought its P/E right back to the rest of the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Mah Sing Group 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Mah Sing Group Berhad is showing 1 warning sign in our investment analysis, you should know about.

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.

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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.