Unfortunately for some shareholders, the China Overseas Grand Oceans Group Limited (HKG:81) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.
Even after such a large drop in price, China Overseas Grand Oceans Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.2x, since almost half of all companies in Hong Kong have P/E ratios greater than 9x and even P/E's higher than 17x 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 so limited.
China Overseas Grand Oceans Group has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
How Is China Overseas Grand Oceans Group's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as China Overseas Grand Oceans Group's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 51%. As a result, earnings from three years ago have also fallen 38% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the ten analysts watching the company. With the market predicted to deliver 16% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that China Overseas Grand Oceans Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
China Overseas Grand Oceans Group's P/E looks about as weak as its stock price lately. 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 Grand Oceans Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You should always think about risks. Case in point, we've spotted 3 warning signs for China Overseas Grand Oceans Group you should be aware of, and 1 of them is a bit concerning.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.