What SWS Capital Berhad (KLSE:SWSCAP) gained 28% in stock price doesn’t tell you

SWS Capital Berhad (KLSE: SWSCAP) Stocks continued their recent momentum with a 28% gain in the past month alone. Unfortunately, last month’s gains hardly offset last year’s losses, with the stock down another 43% over that time.

Given that its price has surged, given that almost half of Malaysian companies have price-to-earnings (or “P/E”) ratios below 13x, you can consider SWS Capital Berhad as a stock to avoid entirely with its 35.9x P/E ratio. However, the P/E may be quite high for a reason and it requires further investigation to determine if it is warranted.

For example, consider that SWS Capital Berhad’s financial performance has been poor lately as its profits have declined. Many may expect the company to still outperform most other companies in the coming period, which has kept the P/E from crashing. You really hope so, otherwise you pay a pretty high price for no particular reason.

Check out our latest analysis for SWS Capital Berhad

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While there are no analyst estimates available for SWS Capital Berhad, take a look at this free data-rich visualization to see how the business is doing on profit, revenue, and cash flow.

Is there enough growth for SWS Capital Berhad?

The only time you’d be really comfortable seeing a P/E as high as SWS Capital Berhad’s is when the company’s growth is on track to definitely outperform the market.

Looking back, last year brought a frustrating 51% drop in the company’s bottom line. At least EPS managed to not fully revert to three years ago overall, thanks to the prior growth period. It therefore seems to us that the company has had a mixed result in terms of earnings growth during this period.

Comparing that to the market, which is expected to grow 13% over the next 12 months, the company’s momentum is weaker based on recent mid-term annualized results.

In light of this, it is alarming that SWS Capital Berhad’s P/E sits above the majority of other companies. Apparently, many of the company’s investors are much more optimistic than suggested lately and aren’t willing to give up their shares at any cost. Only the most daring would assume that these prices are sustainable, as the continuation of recent earnings trends should weigh heavily on the stock price going forward.

The last word

SWS Capital Berhad’s P/E is booming, as is its stock over the past month. As a general rule, we prefer to limit the use of the price/earnings ratio to establishing what the market thinks of the overall health of a company.

Our review of SWS Capital Berhad revealed that its three-year earnings trends are not impacting its high P/E as much as we would have expected, given that they look worse than current market expectations. . When we see weak earnings with slower growth than the market, we suspect the stock price may decline, driving down the high P/E. Unless recent medium-term conditions improve significantly, it is very difficult to accept these prices as reasonable.

We don’t want to rain too much on the parade, but we also found 5 warning signs for SWS Capital Berhad (2 are potentially serious!) of which you should be aware.

Sure, you might also be able to find a better stock than SWS Capital Berhad. So you might want to see this free collection of other companies with P/Es less than 20x and strong earnings growth.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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