CSSC (Hong Kong) Shipping Company Limited's (HKG:3877) price-to-earnings (or "P/E") ratio of 4.9x might make it look like a 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 19x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
CSSC (Hong Kong) Shipping certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 out of favour.
See our latest analysis for CSSC (Hong Kong) Shipping
SEHK:3877 Price to Earnings Ratio vs Industry January 2nd 2024
Keen to find out how analysts think CSSC (Hong Kong) Shipping's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For CSSC (Hong Kong) Shipping?
The only time you'd be truly comfortable seeing a P/E as low as CSSC (Hong Kong) Shipping's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. The latest three year period has also seen an excellent 103% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 8.0% per year during the coming three years according to the three 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 can see why CSSC (Hong Kong) Shipping is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From CSSC (Hong Kong) Shipping's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that CSSC (Hong Kong) Shipping maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 2 warning signs for CSSC (Hong Kong) Shipping (1 is a bit unpleasant!) that you need to be mindful of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.