Best Pacific International Holdings Limited (HKG:2111) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last month tops off a massive increase of 166% in the last year.

In spite of the firm bounce in price, Best Pacific International Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.8x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 20x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Best Pacific International Holdings has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Best Pacific International Holdings' Growth Trending?

Best Pacific International Holdings' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 80%. The latest three year period has also seen an excellent 40% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 13% each year growth forecast for the broader market.

With this information, we find it odd that Best Pacific International Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Best Pacific International Holdings' P/E?

Best Pacific International Holdings' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Best Pacific International Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Best Pacific International Holdings has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Best Pacific International Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.