AGX Group Berhad (KLSE:AGX) Stocks Shoot Up 37% But Its P/E Still Looks Reasonable

AGX Group Berhad (KLSE:AGX) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Although its price has surged higher, it's still not a stretch to say that AGX Group Berhad's price-to-earnings (or "P/E") ratio of 12.3x right now seems quite "middle-of-the-road" compared to the market in Malaysia, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent times have been quite advantageous for AGX Group Berhad as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for AGX Group Berhad

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

Does Growth Match The P/E?

In order to justify its P/E ratio, AGX Group Berhad would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 229% gain to the company's bottom line. Pleasingly, EPS has also lifted 49% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 15% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why AGX Group Berhad is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On AGX Group Berhad's P/E

AGX Group Berhad's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 AGX Group Berhad maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Having said that, be aware AGX Group Berhad is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

You might be able to find a better investment than AGX Group 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.