Why We're Not Concerned Yet About Globetronics Technology Bhd.'s (KLSE:GTRONIC) 25% Share Price Plunge

Unfortunately for some shareholders, the Globetronics Technology Bhd. (KLSE:GTRONIC) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 75% loss during that time.

In spite of the heavy fall in price, given close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 14x, you may still consider Globetronics Technology Bhd as a stock to avoid entirely with its 23x 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.

Globetronics Technology Bhd hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. 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

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How Is Globetronics Technology Bhd's Growth Trending?

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.

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 65%. The last three years don't look nice either as the company has shrunk EPS by 78% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 47% per annum during the coming three years according to the two analysts following the company. With the market only predicted to deliver 11% each year, 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

A significant share price dive has done very little to deflate Globetronics Technology Bhd's very lofty P/E. 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.

As we suspected, our examination of Globetronics Technology Bhd'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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Globetronics Technology Bhd (1 doesn't sit too well with us) you should be aware of.

If you're unsure about the strength of Globetronics Technology Bhd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.