The Price Is Right For UEM Sunrise Berhad (KLSE:UEMS) Even After Diving 26%

The UEM Sunrise Berhad (KLSE:UEMS) share price has fared very poorly over the last month, falling by a substantial 26%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 25% share price drop.

Although its price has dipped substantially, UEM Sunrise Berhad's price-to-earnings (or "P/E") ratio of 36.1x might still make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 14x and even P/E's below 8x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been advantageous for UEM Sunrise Berhad as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for UEM Sunrise Berhad

Keen to find out how analysts think UEM Sunrise Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is UEM Sunrise Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as UEM Sunrise Berhad's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 32%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 13% each year during the coming three years according to the seven analysts following the company. With the market only predicted to deliver 9.5% each year, the company is positioned for a stronger earnings result.

With this information, we can see why UEM Sunrise Berhad is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From UEM Sunrise Berhad's P/E?

A significant share price dive has done very little to deflate UEM Sunrise Berhad's very lofty P/E. 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.

As we suspected, our examination of UEM Sunrise Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for UEM Sunrise Berhad that you should be aware of.

If you're unsure about the strength of UEM Sunrise Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.