What You Can Learn From Unisem (M) Berhad's (KLSE:UNISEM) P/E After Its 26% Share Price Crash

Unfortunately for some shareholders, the Unisem (M) Berhad (KLSE:UNISEM) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 40% in that time.

Even after such a large drop 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 Unisem (M) Berhad as a stock to avoid entirely with its 52.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Unisem (M) Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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.

View our latest analysis for Unisem (M) Berhad

Keen to find out how analysts think Unisem (M) Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Unisem (M) Berhad's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Unisem (M) Berhad'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 26%. As a result, earnings from three years ago have also fallen 70% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 50% each year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.7% per year, which is noticeably less attractive.

With this information, we can see why Unisem (M) Berhad 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 Unisem (M) Berhad's P/E

A significant share price dive has done very little to deflate Unisem (M) Berhad's very lofty P/E. 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 Unisem (M) Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Unisem (M) Berhad (1 is concerning!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Unisem (M) 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. 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.