To the annoyance of some shareholders, JLogo Holdings Limited (HKG:8527) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.
In spite of the heavy fall in price, JLogo Holdings' price-to-earnings (or "P/E") ratio of -24x might still make it look like a strong buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 10x and even P/E's above 21x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
JLogo Holdings certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for JLogo Holdings
SEHK:8527 Price to Earnings Ratio vs Industry June 9th 2023
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on JLogo Holdings' earnings, revenue and cash flow.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, JLogo Holdings would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we can see why JLogo Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
What We Can Learn From JLogo Holdings' P/E?
JLogo Holdings' P/E looks about as weak as its stock price lately. 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 JLogo Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 2 warning signs for JLogo Holdings (1 shouldn't be ignored!) that you need to be mindful of.
Of course, you might also be able to find a better stock than JLogo Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.