Nasdaq
華爾街日報Marine & General Berhad's (KLSE:M&G) Shares Leap 30% Yet They're Still Not Telling The Full Story
Marine & General Berhad (KLSE:M&G) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.
Although its price has surged higher, Marine & General Berhad may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.9x, since almost half of all companies in Malaysia have P/E ratios greater than 14x and even P/E's higher than 25x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
As an illustration, earnings have deteriorated at Marine & General Berhad over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
See our latest analysis for Marine & General Berhad
How Is Marine & General Berhad's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Marine & General Berhad's to be considered reasonable.
Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. Even so, admirably EPS has lifted 848% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.
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.
With this information, we find it odd that Marine & General Berhad is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Bottom Line On Marine & General Berhad's P/E
Shares in Marine & General Berhad are going to need a lot more upward momentum to get the company's P/E out of its slump. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Marine & General Berhad currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
You need to take note of risks, for example - Marine & General Berhad has 4 warning signs (and 1 which is concerning) we think you should know about.
If you're unsure about the strength of Marine & General Berhad'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.