Some Confidence Is Lacking In VSTECS Berhad's (KLSE:VSTECS) P/E

Explore VSTECS Berhad's Fair Values from the Community and select yours

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider VSTECS Berhad (KLSE:VSTECS) as a stock to potentially avoid with its 16.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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Recent times have been advantageous for VSTECS Berhad as its earnings have been rising faster 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.

View our latest analysis for VSTECS Berhad

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

Is There Enough Growth For VSTECS Berhad?

There's an inherent assumption that a company should outperform the market for P/E ratios like VSTECS Berhad's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 18%. The latest three year period has also seen an excellent 38% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% per annum during the coming three years according to the lone analyst following the company. That's shaping up to be similar to the 11% per annum growth forecast for the broader market.

With this information, we find it interesting that VSTECS Berhad is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that VSTECS Berhad currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for VSTECS Berhad that you should be aware of.

Of course, you might also be able to find a better stock than VSTECS Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.