Some Confidence Is Lacking In JF Technology Berhad (KLSE:JFTECH) As Shares Slide 62%

The JF Technology Berhad (KLSE:JFTECH) share price has fared very poorly over the last month, falling by a substantial 62%. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 10%.

Even after such a large drop in price, JF Technology Berhad may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 35.4x, since almost half of all companies in Malaysia have P/E ratios under 18x and even P/E's lower than 12x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

JF Technology Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for JF Technology 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 JF Technology Berhad's earnings, revenue and cash flow.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as JF Technology Berhad's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 404% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 40% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 27% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that JF Technology Berhad's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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.

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

Even after such a strong price drop, JF Technology Berhad's P/E still exceeds the rest of the market significantly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that JF Technology Berhad currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, 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.

It is also worth noting that we have found 2 warning signs for JF Technology Berhad that you need to take into consideration.

If these risks are making you reconsider your opinion on JF Technology Berhad, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. 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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