Greentown Management Holdings Company Limited (HKG:9979) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 22% in that time.
Although its price has dipped substantially, it's still not a stretch to say that Greentown Management Holdings' 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. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
With earnings growth that's superior to most other companies of late, Greentown Management Holdings has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Check out our latest analysis for Greentown Management Holdings
Is There Some Growth For Greentown Management Holdings?
There's an inherent assumption that a company should be matching the market for P/E ratios like Greentown Management Holdings' to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 29%. Pleasingly, EPS has also lifted 90% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 23% each year during the coming three years according to the twelve analysts following the company. With the market only predicted to deliver 16% each year, the company is positioned for a stronger earnings result.
In light of this, it's curious that Greentown Management Holdings' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Final Word
With its share price falling into a hole, the P/E for Greentown Management Holdings looks quite average now. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Greentown Management Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
Plus, you should also learn about this 1 warning sign we've spotted with Greentown Management Holdings.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.
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