Mi Technovation Berhad (KLSE:MI) Shares May Have Slumped 28% But Getting In Cheap Is Still Unlikely

Mi Technovation Berhad (KLSE:MI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 29% in the last year.

In spite of the heavy fall in price, given around half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 17x, you may still consider Mi Technovation Berhad as a stock to potentially avoid with its 22.5x 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.

Mi Technovation Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mi Technovation Berhad

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

How Is Mi Technovation Berhad's Growth Trending?

In order to justify its P/E ratio, Mi Technovation 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%. Pleasingly, EPS has also lifted 33% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 11% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is noticeably more attractive.

With this information, we find it concerning that Mi Technovation Berhad is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Despite the recent share price weakness, Mi Technovation Berhad's P/E remains higher than most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Mi Technovation Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Mi Technovation Berhad that you need to take into consideration.

You might be able to find a better investment than Mi Technovation Berhad. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com