When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 10x, you may consider JF SmartInvest Holdings Ltd (HKG:9636) as a stock to avoid entirely with its 57.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Recent times have been advantageous for JF SmartInvest Holdings as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for JF SmartInvest Holdings
Is There Enough Growth For JF SmartInvest Holdings?
The only time you'd be truly comfortable seeing a P/E as steep as JF SmartInvest Holdings' is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 1.2% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 102% over the next year. With the market only predicted to deliver 19%, the company is positioned for a stronger earnings result.
With this information, we can see why JF SmartInvest Holdings 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 JF SmartInvest Holdings' P/E
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of JF SmartInvest Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
Plus, you should also learn about this 1 warning sign we've spotted with JF SmartInvest Holdings.
If you're unsure about the strength of JF SmartInvest Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.