Menang Corporation (M) Berhad's (KLSE:MENANG) Shares Leap 33% Yet They're Still Not Telling The Full Story

The Menang Corporation (M) Berhad (KLSE:MENANG) share price has done very well over the last month, posting an excellent gain of 33%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Menang Corporation (M) Berhad's price-to-earnings (or "P/E") ratio of 18.6x is worth a mention when the median P/E in Malaysia is similar at about 18x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for Menang Corporation (M) Berhad as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Menang Corporation (M) Berhad

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

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

There's an inherent assumption that a company should be matching the market for P/E ratios like Menang Corporation (M) Berhad's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 80% last year. Pleasingly, EPS has also lifted 303% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Menang Corporation (M) Berhad is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Menang Corporation (M) Berhad's P/E?

Menang Corporation (M) Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with 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 Menang Corporation (M) Berhad revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Menang Corporation (M) Berhad (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

You might be able to find a better investment than Menang Corporation (M) Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.