With a price-to-earnings (or "P/E") ratio of 8x JNBY Design Limited (HKG:3306) may be sending bullish signals at the moment, given that 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.
We've discovered 1 warning sign about JNBY Design. View them for free.Recent times have been advantageous for JNBY Design 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.
Check out our latest analysis for JNBY Design
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, JNBY Design would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.0% last year. The latest three year period has also seen an excellent 35% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 6.0% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 14% each year, which is noticeably more attractive.
In light of this, it's understandable that JNBY Design's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of JNBY Design's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. 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 1 warning sign for JNBY Design that you should be aware of.
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.