Mr D.I.Y. Group (M) Berhad's (KLSE:MRDIY) Share Price Matching Investor Opinion

With a price-to-earnings (or "P/E") ratio of 40x Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) may be sending very bearish signals at the moment, given that almost half of all companies in Malaysia have P/E ratios under 12x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Mr D.I.Y. Group (M) Berhad's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Mr D.I.Y. Group (M) 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 Mr D.I.Y. Group (M) Berhad.

What Are Growth Metrics Telling Us About The High P/E?

Mr D.I.Y. Group (M) Berhad's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

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 66%. Even so, admirably EPS has lifted 48% 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.

Turning to the outlook, the next year should generate growth of 24% as estimated by the analysts watching the company. That's shaping up to be materially higher than the 9.2% growth forecast for the broader market.

In light of this, it's understandable that Mr D.I.Y. Group (M) 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 Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Mr D.I.Y. Group (M) 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. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Mr D.I.Y. Group (M) Berhad with six simple checks.

If you're unsure about the strength of Mr D.I.Y. Group (M) Berhad's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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