Karrie International Holdings Limited (HKG:1050) Could Be Riskier Than It Looks

Simply Wall St ·  Mar 15, 2023 19:16

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider Karrie International Holdings Limited (HKG:1050) as a highly attractive investment with its 4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

It looks like earnings growth has deserted Karrie International Holdings recently, which is not something to boast about. It might be that many expect the uninspiring earnings performance to worsen, which has repressed the P/E. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Karrie International Holdings

SEHK:1050 Price Based on Past Earnings March 15th 2023
Although there are no analyst estimates available for Karrie International Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Karrie International Holdings' Growth Trending?

In order to justify its P/E ratio, Karrie International Holdings would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Although pleasingly EPS has lifted 120% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Karrie International Holdings' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Karrie International Holdings' P/E?

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 Karrie International Holdings currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for Karrie International Holdings (1 shouldn't be ignored!) that we have uncovered.

If you're unsure about the strength of Karrie International Holdings' 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.

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