Gamuda Berhad (KLSE:GAMUDA) Not Lagging Market On Growth Or Pricing

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider Gamuda Berhad (KLSE:GAMUDA) as a stock to avoid entirely with its 27.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Recent earnings growth for Gamuda 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 Gamuda Berhad

Want the full picture on analyst estimates for the company? Then our free report on Gamuda Berhad will help you uncover what's on the horizon.

How Is Gamuda Berhad's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Gamuda Berhad's to be considered reasonable.

Retrospectively, the last year delivered a decent 5.7% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 43% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 25% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

In light of this, it's understandable that Gamuda Berhad's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Gamuda Berhad's P/E

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.

As we suspected, our examination of Gamuda Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Gamuda Berhad (1 is concerning) you should be aware of.

If you're unsure about the strength of Gamuda Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.