Hutchison Port Holdings Trust's (SGX:NS8U) price-to-earnings (or "P/E") ratio of 7.8x might make it look like a buy right now compared to the market in Singapore, where around half of the companies have P/E ratios above 11x and even P/E's above 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been advantageous for Hutchison Port Holdings Trust as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Hutchison Port Holdings Trust

Want the full picture on analyst estimates for the company? Then our free report on Hutchison Port Holdings Trust will help you uncover what's on the horizon.

Is There Any Growth For Hutchison Port Holdings Trust?

The only time you'd be truly comfortable seeing a P/E as low as Hutchison Port Holdings Trust's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 8.9% per annum as estimated by the three analysts watching the company. Meanwhile, the broader market is forecast to expand by 1.9% per annum, which paints a poor picture.

With this information, we are not surprised that Hutchison Port Holdings Trust is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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.

We've established that Hutchison Port Holdings Trust maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Hutchison Port Holdings Trust (at least 1 which is significant), and understanding them should be part of your investment process.

If you're unsure about the strength of Hutchison Port Holdings Trust's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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