Miramar Hotel and Investment Company, Limited's (HKG:71) Share Price Could Signal Some Risk

Simply Wall St ·  Jan 22 19:56

It's not a stretch to say that Miramar Hotel and Investment Company, Limited's (HKG:71) price-to-earnings (or "P/E") ratio of 10.5x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 9x.  Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.  

With earnings growth that's exceedingly strong of late, Miramar Hotel and Investment Company has been doing very well.   The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future.  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 not quite in favour.    

View our latest analysis for Miramar Hotel and Investment Company

SEHK:71 Price to Earnings Ratio vs Industry January 23rd 2024

Although there are no analyst estimates available for Miramar Hotel and Investment Company, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

Does Growth Match The P/E?  

Miramar Hotel and Investment Company's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.  

Taking a look back first, we see that the company grew earnings per share by an impressive 75% last year.    Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 2.8% overall.  Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.  

In contrast to the company, the rest of the market is expected to grow by 22% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's somewhat alarming that Miramar Hotel and Investment Company's P/E sits in line with the majority of other companies.  Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now.  Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.  

The Bottom Line On Miramar Hotel and Investment Company's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Miramar Hotel and Investment Company currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term.  When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower.  Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Miramar Hotel and Investment Company that you need to be mindful of.  

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

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