Some Hubline Berhad (KLSE:HUBLINE) Shareholders Look For Exit As Shares Take 27% Pounding

The Hubline Berhad (KLSE:HUBLINE) share price has fared very poorly over the last month, falling by a substantial 27%. Looking at the bigger picture, even after this poor month the stock is up 38% in the last year.

In spite of the heavy fall in price, Hubline Berhad may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 74.9x, since almost half of all companies in Malaysia have P/E ratios under 15x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Hubline Berhad over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Hubline Berhad

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hubline Berhad's earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Hubline Berhad would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. The last three years don't look nice either as the company has shrunk EPS by 81% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 17% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Hubline Berhad's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Hubline Berhad's shares may have retreated, but its P/E is still flying high. 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.

Our examination of Hubline Berhad revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 2 warning signs for Hubline Berhad (1 is potentially serious!) that you should be aware of.

You might be able to find a better investment than Hubline Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.