After Leaping 28% Greatech Technology Berhad (KLSE:GREATEC) Shares Are Not Flying Under The Radar

Despite an already strong run, Greatech Technology Berhad (KLSE:GREATEC) shares have been powering on, with a gain of 28% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.8% over the last year.

Since its price has surged higher, Greatech Technology Berhad may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 38.8x, since almost half of all companies in Malaysia have P/E ratios under 14x and even P/E's lower than 8x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Greatech Technology Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Greatech Technology Berhad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Greatech Technology Berhad.

How Is Greatech Technology Berhad's Growth Trending?

Greatech Technology Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 19%. Regardless, EPS has managed to lift by a handy 24% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 17% each year over the next three years. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader market.

In light of this, it's understandable that Greatech Technology Berhad's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Greatech Technology Berhad's P/E?

Greatech Technology Berhad's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Greatech Technology Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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 Greatech Technology Berhad is showing 2 warning signs in our investment analysis, and 1 of those is significant.

Of course, you might also be able to find a better stock than Greatech Technology 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.