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Investors Interested In D & O Green Technologies Berhad's (KLSE:D&O) Earnings

When close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider D & O Green Technologies Berhad (KLSE:D&O) as a stock to avoid entirely with its 72.8x 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.

D & O Green Technologies Berhad could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for D & O Green Technologies Berhad

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on D & O Green Technologies Berhad.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as D & O Green Technologies Berhad's is when the company's growth is on track to outshine the market decidedly.

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Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 7.4%. Even so, admirably EPS has lifted 119% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 62% over the next year. With the market only predicted to deliver 8.0%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that D & O Green Technologies Berhad's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

As we suspected, our examination of D & O Green Technologies Berhad's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware D & O Green Technologies Berhad is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than D & O Green Technologies Berhad. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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