Investors Still Aren't Entirely Convinced By PBA Holdings Bhd's (KLSE:PBA) Earnings Despite 46% Price Jump

The PBA Holdings Bhd (KLSE:PBA) share price has done very well over the last month, posting an excellent gain of 46%. The last month tops off a massive increase of 224% in the last year.

Even after such a large jump in price, PBA Holdings Bhd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.2x, since almost half of all companies in Malaysia have P/E ratios greater than 16x and even P/E's higher than 31x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

PBA Holdings Bhd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

See our latest analysis for PBA Holdings Bhd

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 PBA Holdings Bhd's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as PBA Holdings Bhd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 58% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 298% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that PBA Holdings Bhd is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift PBA Holdings Bhd's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that PBA Holdings Bhd 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 take the next step, you should know about the 1 warning sign for PBA Holdings Bhd that we have uncovered.

If you're unsure about the strength of PBA Holdings Bhd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.