Easy Smart Group Holdings Limited (HKG:2442) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.
Following the firm bounce in price, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider Easy Smart Group Holdings as a stock to potentially avoid with its 11.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
Easy Smart Group Holdings certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
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Is There Enough Growth For Easy Smart Group Holdings?
Easy Smart Group Holdings' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 45% last year. As a result, it also grew EPS by 19% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's alarming that Easy Smart Group Holdings' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
The Final Word
Easy Smart Group Holdings' P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Easy Smart Group Holdings currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Before you take the next step, you should know about the 2 warning signs for Easy Smart Group Holdings (1 is concerning!) 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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有鉴于此,令人震惊的是,Easy Smart Group Holdings的市盈率高于大多数其他公司。显然,该公司的许多投资者比最近所表明的要看涨得多,他们不愿以任何价格抛售股票。只有最大胆的人才会认为这些价格是可持续的,因为近期收益趋势的持续最终可能会严重影响股价。
最后一句话
自从股价强劲上涨以来,Easy Smart Group Holdings的市盈率一直在上升。仅使用市盈率来确定是否应该出售股票是不明智的,但它可以作为公司未来前景的实用指南。
我们已经确定,Easy Smart Group Holdings目前的市盈率远高于预期,因为其最近的三年增长低于更广泛的市场预期。当我们看到收益疲软,增长低于市场增长时,我们怀疑股价有下跌的风险,从而降低高市盈率。如果最近的中期收益趋势继续下去,将使股东的投资面临重大风险,潜在投资者面临支付过高溢价的危险。
在采取下一步行动之前,你应该了解Easy Smart Group Holdings的两个警告标志(其中一个令人担忧!)我们已经发现了。