With a price-to-earnings (or "P/E") ratio of 13.5x HKT Trust and HKT Limited (HKG:6823) may be sending bearish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.
HKT Trust and HKT's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
SEHK:6823 Price to Earnings Ratio vs Industry May 9th 2024 If you'd like to see what analysts are forecasting going forward, you should check out our free report on HKT Trust and HKT.
Is There Enough Growth For HKT Trust and HKT?
HKT Trust and HKT's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 5.9% overall from three years ago. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 2.0% each year during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 16% per annum growth forecast for the broader market.
With this information, we find it concerning that HKT Trust and HKT is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 Bottom Line On HKT Trust and HKT'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.
Our examination of HKT Trust and HKT's 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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for HKT Trust and HKT (1 is potentially serious) you should be aware of.
If these risks are making you reconsider your opinion on HKT Trust and HKT, explore our interactive list of high quality stocks to get an idea of what else is out there.
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