There wouldn't be many who think Yuexiu Services Group Limited's (HKG:6626) price-to-earnings (or "P/E") ratio of 8.6x is worth a mention when the median P/E in Hong Kong is similar at about 9x. 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.
Recent times have been advantageous for Yuexiu Services Group as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.
Is There Some Growth For Yuexiu Services Group?
The only time you'd be comfortable seeing a P/E like Yuexiu Services Group's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. The latest three year period has also seen an excellent 64% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 16% per annum over the next three years. With the market predicted to deliver 15% growth each year, the company is positioned for a comparable earnings result.
In light of this, it's understandable that Yuexiu Services Group's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
What We Can Learn From Yuexiu Services Group's P/E?
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Yuexiu Services Group's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.
Before you take the next step, you should know about the 1 warning sign for Yuexiu Services Group that we have uncovered.
Of course, you might also be able to find a better stock than Yuexiu Services Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.