Earnings Tell The Story For Genetec Technology Berhad (KLSE:GENETEC) As Its Stock Soars 36%

Genetec Technology Berhad (KLSE:GENETEC) shares have had a really impressive month, gaining 36% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.2% in the last twelve months.

Following the firm bounce in price, given close to half the companies in Malaysia have price-to-earnings ratios (or "P/E's") below 13x, you may consider Genetec Technology Berhad as a stock to avoid entirely with its 25.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Genetec Technology Berhad certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Genetec Technology Berhad

Keen to find out how analysts think Genetec Technology Berhad's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Genetec Technology Berhad's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 248%. Pleasingly, EPS has also lifted 12,780% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 9.5% per annum growth forecast for the broader market.

With this information, we can see why Genetec Technology Berhad is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Genetec Technology Berhad's P/E

Shares in Genetec Technology Berhad have built up some good momentum lately, which has really inflated its 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.

We've established that Genetec Technology Berhad maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Genetec Technology Berhad that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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.

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