Investors Still Aren't Entirely Convinced By SKP Resources Bhd's (KLSE:SKPRES) Earnings Despite 26% Price Jump

SKP Resources Bhd (KLSE:SKPRES) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

Although its price has surged higher, there still wouldn't be many who think SKP Resources Bhd's price-to-earnings (or "P/E") ratio of 16.2x is worth a mention when the median P/E in Malaysia is similar at about 16x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

While the market has experienced earnings growth lately, SKP Resources Bhd's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for SKP Resources Bhd

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Is There Some Growth For SKP Resources Bhd?

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

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 51%. As a result, earnings from three years ago have also fallen 14% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 21% per annum over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

In light of this, it's curious that SKP Resources Bhd's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On SKP Resources Bhd's P/E

Its shares have lifted substantially and now SKP Resources Bhd's P/E is also back up to the market median. 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 SKP Resources Bhd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for SKP Resources Bhd you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.