Why We're Not Concerned About Mr D.I.Y. Group (M) Berhad's (KLSE:MRDIY) Share Price

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 16x, you may consider Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) as a stock to avoid entirely with its 25.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Mr D.I.Y. Group (M) Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Mr D.I.Y. Group (M) Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mr D.I.Y. Group (M) Berhad.

How Is Mr D.I.Y. Group (M) Berhad's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Mr D.I.Y. Group (M) Berhad's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 56% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

With this information, we can see why Mr D.I.Y. Group (M) 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.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Mr D.I.Y. Group (M) Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Mr D.I.Y. Group (M) Berhad is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Mr D.I.Y. Group (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.