It's not a stretch to say that Lonking Holdings Limited's (HKG:3339) price-to-earnings (or "P/E") ratio of 9.1x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Lonking Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Check out our latest analysis for Lonking Holdings
Does Growth Match The P/E?
Lonking Holdings' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
If we review the last year of earnings growth, the company posted a terrific increase of 61%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 67% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Looking ahead now, EPS is anticipated to climb by 18% per annum during the coming three years according to the four analysts following the company. That's shaping up to be similar to the 16% per annum growth forecast for the broader market.
With this information, we can see why Lonking Holdings is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
What We Can Learn From Lonking Holdings' P/E?
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
As we suspected, our examination of Lonking Holdings' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Lonking Holdings you should know about.
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 low P/E).
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com