Optimistic Investors Push Beng Kuang Marine Limited (SGX:BEZ) Shares Up 41% But Growth Is Lacking

Despite an already strong run, Beng Kuang Marine Limited (SGX:BEZ) shares have been powering on, with a gain of 41% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 50% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Beng Kuang Marine's price-to-earnings (or "P/E") ratio of 12.1x is worth a mention when the median P/E in Singapore is similar at about 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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While the market has experienced earnings growth lately, Beng Kuang Marine's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for Beng Kuang Marine

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Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Beng Kuang Marine's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 54%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 168% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 2.9% per annum during the coming three years according to the lone analyst following the company. With the market predicted to deliver 13% growth each year, that's a disappointing outcome.

In light of this, it's somewhat alarming that Beng Kuang Marine's P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Key Takeaway

Its shares have lifted substantially and now Beng Kuang Marine's P/E is also back up to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Beng Kuang Marine's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Beng Kuang Marine that you should be aware of.

If these risks are making you reconsider your opinion on Beng Kuang Marine, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.