When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may consider COSCO SHIPPING Holdings Co., Ltd. (HKG:1919) as a highly attractive investment with its 3.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Our free stock report includes 2 warning signs investors should be aware of before investing in COSCO SHIPPING Holdings. Read for free now.Recent times have been advantageous for COSCO SHIPPING Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.
See our latest analysis for COSCO SHIPPING Holdings
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, COSCO SHIPPING Holdings would need to produce anemic growth that's substantially trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 108% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 44% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to slump, contracting by 27% each year during the coming three years according to the eight analysts following the company. With the market predicted to deliver 14% growth per annum, that's a disappointing outcome.
With this information, we are not surprised that COSCO SHIPPING Holdings is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Final Word
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 COSCO SHIPPING Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.
Before you settle on your opinion, we've discovered 2 warning signs for COSCO SHIPPING Holdings (1 is significant!) that you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.