FoundPac Group Berhad's (KLSE:FPGROUP) Popularity With Investors Is Under Threat From Overpricing

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider FoundPac Group Berhad (KLSE:FPGROUP) as a stock to potentially avoid with its 19.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Earnings have risen firmly for FoundPac Group Berhad recently, which is pleasing to see. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for FoundPac Group 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 FoundPac Group Berhad's earnings, revenue and cash flow.

How Is FoundPac Group Berhad's Growth Trending?

In order to justify its P/E ratio, FoundPac Group Berhad would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. Still, incredibly EPS has fallen 36% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 14% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that FoundPac Group Berhad's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

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 FoundPac Group Berhad revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 4 warning signs for FoundPac Group Berhad (3 are significant!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.