Nasdaq
华尔街日报Slammed 25% SKP Resources Bhd (KLSE:SKPRES) Screens Well Here But There Might Be A Catch
Unfortunately for some shareholders, the SKP Resources Bhd (KLSE:SKPRES) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.
After such a large drop in price, given about half the companies in Malaysia have price-to-earnings ratios (or "P/E's") above 15x, you may consider SKP Resources Bhd as an attractive investment with its 7.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
SKP Resources Bhd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for SKP Resources Bhd
How Is SKP Resources Bhd's Growth Trending?
In order to justify its P/E ratio, SKP Resources Bhd would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered a frustrating 7.2% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 44% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the seven analysts watching the company. With the market predicted to deliver 12% growth each year, the company is positioned for a comparable earnings result.
In light of this, it's peculiar that SKP Resources Bhd's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Final Word
The softening of SKP Resources Bhd's shares means its P/E is now sitting at a pretty low level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that SKP Resources Bhd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with SKP Resources Bhd, and understanding should be part of your investment process.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.