YTL Corporation Berhad (KLSE:YTL) Stock Rockets 28% As Investors Are Less Pessimistic Than Expected

YTL Corporation Berhad (KLSE:YTL) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 34%.

Even after such a large jump in price, it's still not a stretch to say that YTL Corporation Berhad's price-to-earnings (or "P/E") ratio of 14.4x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, YTL Corporation Berhad has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for YTL Corporation Berhad

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How Is YTL Corporation Berhad's Growth Trending?

YTL Corporation Berhad's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 7.8% each year as estimated by the three analysts watching the company. With the market predicted to deliver 16% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's curious that YTL Corporation Berhad's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From YTL Corporation Berhad's P/E?

YTL Corporation Berhad appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 YTL Corporation Berhad currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware YTL Corporation Berhad is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

You might be able to find a better investment than YTL Corporation 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.