This article first appeared in The Edge Malaysia Weekly on June 1, 2020 - June 7, 2020

At last Wednesday’s market close, the market capitalisation of the world’s largest nitrile glovemaker Hartalega Holdings Bhd had overtaken that of the second-largest lender in the country, CIMB Group Holdings Bhd, for the first time.

Hartalega was valued at RM36.83 billion compared with CIMB’s RM33.93 billion.

By Friday, the gap had widened further, with the market valuing the glovemaker at RM42.45 billion compared with RM37.41 billion for CIMB.

Would anyone have thought this possible before the Covid-19 pandemic? But the real question is, is the market behaving rationally?

Let’s look at the valuations. Based on Bloomberg data, Hartalega is trading at a historical price-to-earnings ratio (PER) of 96.98 times. Its closest peer, Top Glove Corp Bhd, is trading at a close 90.5 times.

With earnings upgrades by analysts, the forward PERs are lower but still stratospheric at 59.71 times for Hartalega and 47.84 times for Top Glove.

Compare these numbers with those of Apple Inc, which makes the world’s most popular smartphones. Apple is trading at historical and forward PERs of 24.97 and 25.62 times respectively.

While it is good to see a robust market with healthy retail participation, investors have to be mindful of overvalued stocks and trade with caution, especially if speculators are also in the market in a big way.

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