With a price-to-earnings (or "P/E") ratio of 13x China Overseas Property Holdings Limited (HKG:2669) 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 4x 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.
With its earnings growth in positive territory compared to the declining earnings of most other companies, China Overseas Property Holdings has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for China Overseas Property Holdings
SEHK:2669 Price to Earnings Ratio vs Industry January 9th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Overseas Property Holdings.
Is There Enough Growth For China Overseas Property Holdings?
The only time you'd be truly comfortable seeing a P/E as high as China Overseas Property Holdings' is when the company's growth is on track to outshine the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. The latest three year period has also seen an excellent 160% 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.
Turning to the outlook, the next three years should generate growth of 21% per year as estimated by the analysts watching the company. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.
In light of this, it's understandable that China Overseas Property Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
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.
As we suspected, our examination of China Overseas Property Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for China Overseas Property Holdings with six simple checks.
If you're unsure about the strength of China Overseas Property 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.