Genetec Technology Co., Ltd. (KLSE:GENETEC) stock has done very well, rising 36% after a turbulent early period. But last month’s gains weren’t enough to keep shareholders happy, as shares are still down 3.2% over the past 12 months.
With prices rebounding solidly, and given that nearly half of Malaysian companies trade at a price-to-earnings (or “P/E”) ratio of less than 13 times, you can consider Genetec Technology Berhad as a stock to avoid its 25.3 times earnings/E ratio entirely. Although, it’s not wise to just take the P/E ratio at face value, as there might be an explanation why it’s so high.
Genetec Technology Berhad has certainly done well lately as its earnings growth outpaced most other companies. Many seem to expect the strong earnings performance to continue, boosting the multiple. You really hope so, otherwise you’ll be paying a pretty high price for no reason.
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What is the growth trend of Genetec Technology Berhad?
There is an inherent assumption that a company’s P/E ratio should far outperform the market, such as Genetec Technology Berhad’s P/E ratio to be considered reasonable.
If we look back at last year’s earnings growth, the company posted a whopping 248% growth. Reassuringly, earnings per share are also up 12,780% from three years ago combined, thanks to growth over the past 12 months. Therefore, it can be said that the company’s recent earnings growth has been stellar.
Looking ahead, earnings per share are expected to grow 16% annually over the next three years, according to three analysts who follow the company. That would be significantly higher than the 9.5% annual growth forecast for the broader market.
Armed with this information, we can understand why Genetec Technology Berhad trades at a higher P/E ratio than the market. Clearly, shareholders aren’t keen on selling something that could be targeting a more prosperous future.
The Bottom Line on Genetec Technology Berhad’s P/E Ratio
Shares of Genetec Technology Berhad have built some good momentum recently, which does inflate its P/E ratio. It’s not wise to use the P/E ratio alone to determine whether you should sell a stock, but it can serve as a useful guide to a company’s future prospects.
We have identified Genetec Technology Berhad to maintain its high P/E ratio as its forecast growth is higher than expected by the wider market. Shareholders are currently comfortable with the P/E ratio because they are very confident that future earnings will not be threatened. Unless these conditions change, they will continue to provide strong support for the share price.
Before you determine your opinion, we have found 1 Genetec Technology Berhad warning sign You should know.
important is Make sure you’re looking for a great company, not just the first idea you come across. so look at this free An interesting list of companies with strong recent earnings growth (P/E below 20).
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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.
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