Uni-President China Holdings Ltd (HKG:220) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.
Since its price has surged higher, Uni-President China Holdings' price-to-earnings (or "P/E") ratio of 13.7x might make it look like a strong sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 8x and even P/E's below 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Uni-President China Holdings has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
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Does Growth Match The High P/E?
Uni-President China Holdings' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
Retrospectively, the last year delivered an exceptional 36% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Looking ahead now, EPS is anticipated to climb by 5.0% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 15% each year, which is noticeably more attractive.
With this information, we find it concerning that Uni-President China Holdings is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Key Takeaway
The strong share price surge has got Uni-President China Holdings' P/E rushing to great heights as well. 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.
Our examination of Uni-President China Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Uni-President China Holdings, and understanding should be part of your investment process.
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).
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.
Uni-President China Holdings Ltd(HKG: 220)的股东们会很高兴看到股价经历了一个不错的月份,涨幅为27%,并从先前的疲软中恢复过来。并非所有股东都会感到欢欣鼓舞,因为股价在过去十二个月中仍然下跌了令人失望的29%。
由于其价格飙升,Uni-President China Holdings的市盈率(或 “市盈率”)为13.7倍,与香港市场相比,目前看上去像是强劲的抛售。在香港,约有一半公司的市盈率低于8倍,甚至市盈率低于4倍也很常见。尽管如此,我们需要更深入地挖掘,以确定市盈率大幅上涨是否有合理的基础。
与大多数其他公司的收益下降相比,Uni-President China Holdings的收益增长处于正值区间,最近表现良好。看来许多人预计该公司将继续克服更广泛的市场逆境,这增加了投资者购买股票的意愿。你真的希望如此,否则你会无缘无故地付出相当大的代价。
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增长与高市盈率相匹配吗?
Uni-President China Holdings的市盈率对于一家预计将实现非常强劲的增长,更重要的是,其表现要好于市场的公司来说是典型的。