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Kim Teck Cheong Consolidated Berhad's (KLSE:KTC) Shares Leap 28% Yet They're Still Not Telling The Full Story

Kim Teck Cheong Consolidated Berhad (KLSE:KTC) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.

In spite of the firm bounce in price, Kim Teck Cheong Consolidated Berhad's price-to-earnings (or "P/E") ratio of 7.7x might still make it look like a buy right now compared to the market in Malaysia, where around half of the companies have P/E ratios above 14x and even P/E's above 25x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Kim Teck Cheong Consolidated Berhad certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Kim Teck Cheong Consolidated Berhad

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We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Kim Teck Cheong Consolidated Berhad's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Kim Teck Cheong Consolidated Berhad's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 171% last year. The strong recent performance means it was also able to grow EPS by 37% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Kim Teck Cheong Consolidated Berhad is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Key Takeaway

Despite Kim Teck Cheong Consolidated Berhad's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Kim Teck Cheong Consolidated Berhad revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Kim Teck Cheong Consolidated Berhad that you should be aware of.

You might be able to find a better investment than Kim Teck Cheong Consolidated Berhad. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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