When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Genertec Universal Medical Group Company Limited (HKG:2666) as a highly attractive investment with its 3.8x 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.
Recent times have been advantageous for Genertec Universal Medical Group as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Is There Any Growth For Genertec Universal Medical Group?
In order to justify its P/E ratio, Genertec Universal Medical Group would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings growth, the company posted a worthy increase of 6.9%. The latest three year period has also seen a 11% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Turning to the outlook, the next year should generate growth of 4.0% as estimated by the three analysts watching the company. With the market predicted to deliver 21% growth , the company is positioned for a weaker earnings result.
In light of this, it's understandable that Genertec Universal Medical Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
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 Genertec Universal Medical Group 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you take the next step, you should know about the 2 warning signs for Genertec Universal Medical Group (1 shouldn't be ignored!) that we have uncovered.
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.