With a price-to-earnings (or "P/E") ratio of 16.9x Topsports International Holdings Limited (HKG:6110) may be sending very bearish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
There hasn't been much to differentiate Topsports International Holdings' and the market's retreating earnings lately. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
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How Is Topsports International Holdings' Growth Trending?
Topsports International Holdings' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.1%. As a result, earnings from three years ago have also fallen 6.8% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the analysts watching the company. That's shaping up to be similar to the 16% per annum growth forecast for the broader market.
With this information, we find it interesting that Topsports International Holdings is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.
The Key Takeaway
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.
Our examination of Topsports International Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
Having said that, be aware Topsports International Holdings is showing 1 warning sign in our investment analysis, 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.
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.
Topsports International Holdings Limited(HKG: 6110)的市盈率(或 “市盈率”)爲16.9倍,目前可能會發出非常看跌的信號,因爲幾乎一半的香港公司的市盈率低於9倍,甚至市盈率低於5倍也並不罕見。儘管如此,我們需要更深入地挖掘,以確定市盈率大幅上漲是否有合理的基礎。
Topsports International Holdings和市場最近回落的收益並沒有太大區別。一種可能性是市盈率居高不下,因爲投資者認爲該公司可以扭轉局面,擺脫更廣泛的收益下降趨勢。你真的希望如此,否則你會無緣無故地付出相當大的代價。
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Topsports International Holdings的增長趨勢如何?
Topsports International Holdings的市盈率對於一家預計將實現非常強勁的增長,更重要的是,表現要好於市場的公司來說是典型的。