Market Participants Recognise Globetronics Technology Bhd.'s (KLSE:GTRONIC) Earnings Pushing Shares 27% Higher

Globetronics Technology Bhd. (KLSE:GTRONIC) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

Following the firm bounce in price, given close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider Globetronics Technology Bhd as a stock to avoid entirely with its 29.4x P/E ratio. 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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While the market has experienced earnings growth lately, Globetronics Technology Bhd's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Globetronics Technology Bhd

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

Is There Enough Growth For Globetronics Technology Bhd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Globetronics Technology Bhd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 59%. As a result, earnings from three years ago have also fallen 80% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 40% during the coming year according to the three analysts following the company. With the market only predicted to deliver 16%, the company is positioned for a stronger earnings result.

With this information, we can see why Globetronics Technology Bhd 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 Bottom Line On Globetronics Technology Bhd's P/E

Globetronics Technology Bhd's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Globetronics Technology Bhd 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.

Plus, you should also learn about these 4 warning signs we've spotted with Globetronics Technology Bhd (including 1 which doesn't sit too well with us).

You might be able to find a better investment than Globetronics Technology Bhd. 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.