MMIS Berhad's (KLSE:MMIS) 27% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/E Ratio

MMIS Berhad (KLSE:MMIS) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 4.0% over that longer period.

Although its price has dipped substantially, MMIS Berhad may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 22x, since almost half of all companies in Malaysia have P/E ratios under 15x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

Recent times have been quite advantageous for MMIS Berhad as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for MMIS Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on MMIS Berhad will help you shine a light on its historical performance.

Does Growth Match The High P/E?

In order to justify its P/E ratio, MMIS 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 72%. Still, incredibly EPS has fallen 100% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that MMIS Berhad's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate 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.

The Final Word

Despite the recent share price weakness, MMIS Berhad's P/E remains higher than most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that MMIS Berhad currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, 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 3 warning signs for MMIS Berhad (2 are significant!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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.