Market Cool On CUCKOO International (MAL) Berhad's (KLSE:CKI) Earnings Pushing Shares 29% Lower

To the annoyance of some shareholders, CUCKOO International (MAL) Berhad (KLSE:CKI) shares are down a considerable 29% in the last month, which continues a horrid run for the company. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Even after such a large drop in price, CUCKOO International (MAL) Berhad's price-to-earnings (or "P/E") ratio of 8.1x might still make it look like a buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 14x and even P/E's above 25x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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CUCKOO International (MAL) Berhad hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for CUCKOO International (MAL) Berhad

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How Is CUCKOO International (MAL) Berhad's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like CUCKOO International (MAL) Berhad's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 3,007% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 71% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 14% growth forecast for the broader market.

In light of this, it's peculiar that CUCKOO International (MAL) Berhad's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

CUCKOO International (MAL) Berhad's recently weak share price has pulled its P/E below most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that CUCKOO International (MAL) Berhad currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with CUCKOO International (MAL) Berhad.

Of course, you might also be able to find a better stock than CUCKOO International (MAL) Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.