Some shareholders are worried about Nestcon Berhad’s P / E ratio (KLSE: NESTCON)


With a price / earnings (or “P / E”) ratio of 18.5x Nestcon Berhad (KLSE: NESTCON) may be sending bearish signals right now, given that almost half of all companies in Malaysia have P / E ratios below 15x and even P / E below 9x are not unusual. However, the P / E may be high for a reason and requires further investigation to determine if it is warranted.

Nestcon Berhad could do better as its profits have fallen in recent times while most other companies have recorded positive profit growth. One possibility is that the P / E is high because investors think this poor earnings performance will turn the page. If not, existing shareholders may be extremely concerned about the viability of the share price.

Check out our latest review for Nestcon Berhad

KLSE price: NESTCON based on past earnings September 30, 2021

Keen to know how analysts think the future of Nestcon Berhad compares to that of the industry? In this case, our free report is a great place to start.

What do the growth indicators tell us about the high P / E?

In order to justify its P / E ratio, Nestcon Berhad is expected to produce impressive growth above the market.

Looking back at the results of the past year, the company’s profits have fallen discouragingly to 24%. The past three years aren’t looking good either, as the company has reduced its EPS by 98% overall. Therefore, it is fair to say that profit growth has recently been undesirable for the company.

As for the outlook, next year is expected to bring lower returns, with profits down 98% according to estimates from the two analysts who watch the company. With the market forecast for 15% growth, this is a disappointing result.

In light of this, it is alarming that the P / E of Nestcon Berhad is above the majority of other companies. It appears most investors are hoping for a turnaround in the company’s business outlook, but the analyst cohort is not so confident that will happen. There is a good chance that these shareholders are preparing for a future disappointment if the P / E falls to levels more in line with the negative growth outlook.

What can we learn from the P / E of Nestcon Berhad?

As a general rule, we do not recommend overinterpreting price / earnings ratios when making investment decisions, although this can reveal a lot about what other market participants think about the company.

We have established that Nestcon Berhad is currently trading at a much higher P / E than expected for a company with expected declining earnings. When we see a poor outlook with declining earnings, we suspect that the stock price may fall, pushing the high P / E down. This exposes shareholders’ investments to significant risk and potential investors risk paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Nestcon Berhad that you need to take into consideration.

Sure, you might also be able to find a better stock than Nestcon Berhad. So you might want to see this free set of other companies whose P / E is less than 20x and whose profits have risen sharply.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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