Samsonite Group S.A. (HKG:1910) shareholders that were waiting for something to happen have been dealt a blow with a 39% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.
In spite of the heavy fall in price, Samsonite Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.8x, since almost half of all companies in Hong Kong have P/E ratios greater than 11x and even P/E's higher than 22x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Samsonite Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Check out our latest analysis for Samsonite Group
Is There Any Growth For Samsonite Group?
The only time you'd be truly comfortable seeing a P/E as low as Samsonite Group's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 2,402% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Looking ahead now, EPS is anticipated to climb by 4.6% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 14% per annum growth forecast for the broader market.
In light of this, it's understandable that Samsonite Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Samsonite Group's P/E
Samsonite Group's recently weak share price has pulled its P/E below most other companies. 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 Samsonite Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You should always think about risks. Case in point, we've spotted 2 warning signs for Samsonite Group you should be aware of.
Of course, you might also be able to find a better stock than Samsonite Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.