Yahoo Finance There's Reason For Concern Over Crescendo Corporation Berhad's (KLSE:CRESNDO) Massive 27% Price Jump
Despite an already strong run, Crescendo Corporation Berhad (KLSE:CRESNDO) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 96% in the last year.
Since its price has surged higher, given close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 15x, you may consider Crescendo Corporation Berhad as a stock to avoid entirely with its 32.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
For instance, Crescendo Corporation Berhad's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.
View our latest analysis for Crescendo Corporation Berhad
Although there are no analyst estimates available for Crescendo Corporation Berhad, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Growth Metrics Telling Us About The High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Crescendo Corporation Berhad's is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 42%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 44% in total over the last three years. 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.
It's interesting to note that the rest of the market is similarly expected to grow by 15% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.
In light of this, it's curious that Crescendo Corporation Berhad's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
The Key Takeaway
Shares in Crescendo Corporation Berhad have built up some good momentum lately, which has really inflated its 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.
We've established that Crescendo Corporation Berhad currently trades on a higher than expected P/E since its recent three-year growth is only in line with the wider market forecast. When we see average earnings with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
Plus, you should also learn about these 4 warning signs we've spotted with Crescendo Corporation Berhad (including 1 which is a bit concerning).
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.
