The Starjoy Wellness and Travel Company Limited (HKG:3662) share price has done very well over the last month, posting an excellent gain of 41%. 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.
In spite of the firm bounce in price, Starjoy Wellness and Travel's price-to-earnings (or "P/E") ratio of 2.7x might still make it look like a strong buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 10x and even P/E's above 20x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
As an illustration, earnings have deteriorated at Starjoy Wellness and Travel over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
SEHK:3662 Price to Earnings Ratio vs Industry May 13th 2024 Although there are no analyst estimates available for Starjoy Wellness and Travel, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Starjoy Wellness and Travel would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered a frustrating 2.0% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 37% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
With this information, we are not surprised that Starjoy Wellness and Travel is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Key Takeaway
Shares in Starjoy Wellness and Travel are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Starjoy Wellness and Travel maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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 should always think about risks. Case in point, we've spotted 3 warning signs for Starjoy Wellness and Travel you should be aware of, and 2 of them are 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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Starjoy Wellness and Travel Company Limited(HKG: 3662)的股价在上个月表现良好,上涨了41%。长期股东将对股价的回升表示感谢,因为在最近的反弹之后的一年中,股价几乎持平。
尽管价格稳步反弹,但与香港市场相比,Starjoy Wellness and Travel的2.7倍市盈率(或 “市盈率”)仍可能使其看起来像是一个强劲的买盘。在香港,约有一半的公司的市盈率超过10倍,甚至市盈率超过20倍也很常见。但是,市盈率可能很低是有原因的,需要进一步调查以确定其是否合理。
举例来说,去年,Starjoy Wellness and Travel的收入有所下降,这根本不理想。一种可能性是市盈率很低,因为投资者认为该公司在避免在不久的将来表现不佳方面做得还不够。但是,如果最终没有发生这种情况,那么现有股东可能会对股价的未来走向感到乐观。