Texchem Resources Bhd’s (KLSE:TEXCHEM) 47% jump shows its popularity with investors
Texchem Resources Bhd (KLSE: TEXCHEM) Stocks continued their recent momentum with a 47% gain in the past month alone. The annual gain stands at 288% following the latest surge, prompting investors to sit up and take notice.
Even after such a price hike, you could still be forgiven for feeling indifferent to Texchem Resources Bhd’s P/E ratio of 13.5x, since the median price-to-earnings ratio (or “P/E”) in Malaysia is also close to 15x. Although this raises no eyebrows, if the P/E ratio is not justified, investors could miss a potential opportunity or ignore an impending disappointment.
Recent times have been good for Texchem Resources Bhd as its profits have grown faster than most other companies. Many may expect the strong earnings performance to decline, which has kept the P/E from rising. If not, existing shareholders have reason to be optimistic about the future direction of the stock price.
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What do the growth indicators tell us about the P/E?
Texchem Resources Bhd’s P/E ratio would be typical of a company that is only expected to moderate growth and, more importantly, perform in line with the market.
If we look at the last year of earnings growth, the company posted a tremendous 185% increase. However, the last three-year period has not been so good overall as it has failed to deliver any growth at all. As a result, shareholders would probably not have been too pleased with the unstable medium-term growth rates.
Looking ahead, estimates from the only analyst covering the company suggest earnings are expected to grow 16% annually over the next three years. With a market that should generate growth of 15% per year, the company is positioned for a comparable result.
With this information, we can see why Texchem Resources Bhd is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable just hanging on while the company lays low.
The last word
Shares of Texchem Resources Bhd have had a lot of momentum lately, which has brought its P/E level with the market. The price/earnings ratio is claimed to be an inferior measure of value in some industries, but it can be a powerful indicator of business sentiment.
We have established that Texchem Resources Bhd maintains its moderate P/E on the back of its growth forecast in line with the broader market, as expected. At present, shareholders are comfortable with the P/E as they are fully confident that future earnings will not come as a surprise. It’s hard to see the stock price moving strongly in either direction in the near future under these circumstances.
Before proceeding to the next step, you must know the 4 warning signs for Texchem Resources Bhd that we discovered.
If you are uncertain about the strength of Texchem Resources Bhd’s businesswhy not explore our interactive list of stocks with strong trading fundamentals for other companies you may have missed.
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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.