When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Haitong Unitrust International Financial Leasing Co., Ltd. (HKG:1905) 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.
Earnings have risen at a steady rate over the last year for Haitong Unitrust International Financial Leasing, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.
Check out our latest analysis for Haitong Unitrust International Financial Leasing
How Is Haitong Unitrust International Financial Leasing's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Haitong Unitrust International Financial Leasing's to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.7% last year. The solid recent performance means it was also able to grow EPS by 23% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
In light of this, it's understandable that Haitong Unitrust International Financial Leasing's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Bottom Line On Haitong Unitrust International Financial Leasing's P/E
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Haitong Unitrust International Financial Leasing maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about these 2 warning signs we've spotted with Haitong Unitrust International Financial Leasing (including 1 which doesn't sit too well with us).
If these risks are making you reconsider your opinion on Haitong Unitrust International Financial Leasing, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.