Nasdaq
华尔街日报Mr D.I.Y. Group (M) Berhad's (KLSE:MRDIY) Share Price Not Quite Adding Up
Mr D.I.Y. Group (M) Berhad's (KLSE:MRDIY) price-to-earnings (or "P/E") ratio of 23.5x might make it look like a strong sell right now compared to the market in Malaysia, where around half of the companies have P/E ratios below 14x and even P/E's below 8x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Recent earnings growth for Mr D.I.Y. Group (M) Berhad has been in line with the market. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Mr D.I.Y. Group (M) Berhad
Is There Enough Growth For Mr D.I.Y. Group (M) Berhad?
In order to justify its P/E ratio, Mr D.I.Y. Group (M) Berhad would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings growth, the company posted a worthy increase of 5.9%. This was backed up an excellent period prior to see EPS up by 30% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 8.3% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 20% each year growth forecast for the broader market.
With this information, we find it concerning that Mr D.I.Y. Group (M) Berhad is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 growth outlook.
What We Can Learn From Mr D.I.Y. Group (M) Berhad's P/E?
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of Mr D.I.Y. Group (M) Berhad's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
You should always think about risks. Case in point, we've spotted 1 warning sign for Mr D.I.Y. Group (M) Berhad you should be aware of.
Of course, you might also be able to find a better stock than Mr D.I.Y. Group (M) Berhad. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.