The SCE Intelligent Commercial Management Holdings Limited (HKG:606) share price has fared very poorly over the last month, falling by a substantial 29%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 82% loss during that time.
Although its price has dipped substantially, SCE Intelligent Commercial Management Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.1x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
SCE Intelligent Commercial Management Holdings certainly has been doing a good job lately as it's been growing earnings more 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 SCE Intelligent Commercial Management Holdings?
There's an inherent assumption that a company should far underperform the market for P/E ratios like SCE Intelligent Commercial Management Holdings' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The latest three year period has also seen a 15% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Looking ahead now, EPS is anticipated to climb by 2.4% per annum during the coming three years according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is noticeably more attractive.
With this information, we can see why SCE Intelligent Commercial Management Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Having almost fallen off a cliff, SCE Intelligent Commercial Management Holdings' share price has pulled its P/E way down as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that SCE Intelligent Commercial Management Holdings 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.
And what about other risks? Every company has them, and we've spotted 1 warning sign for SCE Intelligent Commercial Management Holdings you should know about.
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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