Not Many Are Piling Into Edaran Berhad (KLSE:EDARAN) Stock Yet As It Plummets 27%

Unfortunately for some shareholders, the Edaran Berhad (KLSE:EDARAN) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop has obliterated the annual return, with the share price now down 3.6% over that longer period.

Even after such a large drop in price, it's still not a stretch to say that Edaran Berhad's price-to-earnings (or "P/E") ratio of 14.4x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Edaran Berhad as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Edaran Berhad

Although there are no analyst estimates available for Edaran Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Edaran Berhad's Growth Trending?

The only time you'd be comfortable seeing a P/E like Edaran Berhad's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 86%. The strong recent performance means it was also able to grow EPS by 570% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Edaran Berhad is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Edaran Berhad's plummeting stock price has brought its P/E right back to the rest of the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Edaran Berhad revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 2 warning signs for Edaran Berhad (1 doesn't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on Edaran 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.