Even With A 40% Surge, Cautious Investors Are Not Rewarding Perak Corporation Berhad's (KLSE:PRKCORP) Performance Completely

The Perak Corporation Berhad (KLSE:PRKCORP) share price has done very well over the last month, posting an excellent gain of 40%. The last 30 days bring the annual gain to a very sharp 64%.

Although its price has surged higher, given about half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 16x, you may still consider Perak Corporation Berhad as a highly attractive investment with its 2.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Perak Corporation Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 out of favour.

View our latest analysis for Perak Corporation Berhad

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Perak Corporation Berhad will help you shine a light on its historical performance.

How Is Perak Corporation Berhad's Growth Trending?

In order to justify its P/E ratio, Perak Corporation Berhad would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 137% gain to the company's bottom line. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Perak Corporation Berhad's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Perak Corporation Berhad's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

We've established that Perak Corporation Berhad currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Perak Corporation Berhad that you should be aware of.

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.