NCT Alliance Berhad (KLSE:NCT) Stocks Shoot Up 28% But Its P/E Still Looks Reasonable

NCT Alliance Berhad (KLSE:NCT) shareholders have had their patience rewarded with a 28% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 7.8% isn't as impressive.

In spite of the firm bounce in price, it's still not a stretch to say that NCT Alliance Berhad's price-to-earnings (or "P/E") ratio of 17.4x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

As an illustration, earnings have deteriorated at NCT Alliance Berhad over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for NCT Alliance Berhad

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on NCT Alliance Berhad's earnings, revenue and cash flow.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like NCT Alliance Berhad's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 40%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 53% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome 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 momentum is pretty similar based on recent medium-term annualised earnings results.

In light of this, it's understandable that NCT Alliance Berhad's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

NCT Alliance Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that NCT Alliance Berhad maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for NCT Alliance Berhad that you should be aware of.

If these risks are making you reconsider your opinion on NCT Alliance Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.