Dickson Concepts (International) Limited (HKG:113) shareholders have had their patience rewarded with a 42% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.
In spite of the firm bounce in price, there still wouldn't be many who think Dickson Concepts (International)'s price-to-earnings (or "P/E") ratio of 10.1x is worth a mention when the median P/E in Hong Kong is similar at about 11x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
We've discovered 3 warning signs about Dickson Concepts (International). View them for free.For example, consider that Dickson Concepts (International)'s financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
See our latest analysis for Dickson Concepts (International)
Is There Some Growth For Dickson Concepts (International)?
There's an inherent assumption that a company should be matching the market for P/E ratios like Dickson Concepts (International)'s to be considered reasonable.
Retrospectively, the last year delivered a frustrating 17% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 42% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's an unpleasant look.
In light of this, it's somewhat alarming that Dickson Concepts (International)'s P/E sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.
The Bottom Line On Dickson Concepts (International)'s P/E
Its shares have lifted substantially and now Dickson Concepts (International)'s P/E is also back up to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Dickson Concepts (International) currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
You should always think about risks. Case in point, we've spotted 3 warning signs for Dickson Concepts (International) you should be aware of, and 1 of them is concerning.
If you're unsure about the strength of Dickson Concepts (International)'s 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.