Investors Still Aren't Entirely Convinced By Solid Automotive Berhad's (KLSE:SOLID) Earnings Despite 30% Price Jump

The Solid Automotive Berhad (KLSE:SOLID) share price has done very well over the last month, posting an excellent gain of 30%. The last 30 days bring the annual gain to a very sharp 33%.

In spite of the firm bounce in price, Solid Automotive Berhad's price-to-earnings (or "P/E") ratio of 3.3x might still make it look like a strong buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 18x and even P/E's above 34x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Solid Automotive Berhad as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

View our latest analysis for Solid Automotive Berhad

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

How Is Solid Automotive Berhad's Growth Trending?

In order to justify its P/E ratio, Solid Automotive Berhad would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 287% last year. The latest three year period has also seen an excellent 112% overall rise in EPS, aided by its short-term performance. 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.

In light of this, it's peculiar that Solid Automotive Berhad's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Solid Automotive Berhad's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

Our examination of Solid Automotive Berhad revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Solid Automotive Berhad is showing 1 warning sign in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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