When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Haitong Unitrust International Financial Leasing Co., Ltd. (HKG:1905) as a highly attractive investment with its 4.3x 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.
We'd have to say that with no tangible growth over the last year, Haitong Unitrust International Financial Leasing's earnings have been unimpressive. It might be that many expect the uninspiring earnings performance to worsen, which has repressed the P/E. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Haitong Unitrust International Financial Leasing would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. However, a few strong years before that means that it was still able to grow EPS by an impressive 38% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably less attractive on an annualised basis.
With this information, we can see why Haitong Unitrust International Financial Leasing is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Haitong Unitrust International Financial Leasing'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 Haitong Unitrust International Financial Leasing maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
You need to take note of risks, for example - Haitong Unitrust International Financial Leasing has 3 warning signs (and 1 which is potentially serious) we think you should know about.
You might be able to find a better investment than Haitong Unitrust International Financial Leasing. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.