With Celcomdigi Berhad (KLSE:CDB) It Looks Like You'll Get What You Pay For

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider Celcomdigi Berhad (KLSE:CDB) as a stock to avoid entirely with its 23.4x 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.

With earnings growth that's superior to most other companies of late, Celcomdigi Berhad has been doing relatively well. 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.

See our latest analysis for Celcomdigi Berhad

Want the full picture on analyst estimates for the company? Then our free report on Celcomdigi Berhad will help you uncover what's on the horizon.

How Is Celcomdigi Berhad's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 3.2% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 18% each year over the next three years. With the market only predicted to deliver 14% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Celcomdigi Berhad's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Celcomdigi Berhad's 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.

As we suspected, our examination of Celcomdigi Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Celcomdigi Berhad.

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 low P/E).

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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.