Shineroad International Holdings Limited (HKG:1587) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.
Since its price has surged higher, Shineroad International Holdings' price-to-earnings (or "P/E") ratio of 16.5x might make it look like a strong sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 9x and even P/E's below 5x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
As an illustration, earnings have deteriorated at Shineroad International Holdings over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.
Although there are no analyst estimates available for Shineroad International Holdings, 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 High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Shineroad International Holdings' is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 57%. As a result, earnings from three years ago have also fallen 42% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's an unpleasant look.
In light of this, it's alarming that Shineroad International 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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
The Key Takeaway
Shineroad International Holdings' P/E is flying high just like its stock has during the last month. 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 Shineroad International Holdings currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
It is also worth noting that we have found 2 warning signs for Shineroad International Holdings that you need to take into consideration.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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Shineroad International Holdings Limited (HKG:1587) 股東們無疑很高興看到股價在上個月上漲了28%,儘管仍在努力彌補最近失去的地位。不是所有的股東都會感到高興,因爲在過去的十二個月中,股價仍然下跌了令人失望的12%。
隨着股價上漲,Shineroad International Holdings的市盈率(或“P/E”)爲16.5倍,與香港市場上約有一半的公司的市盈率低於9倍,甚至低於5倍的市盈率相比,目前可能表現爲強賣。但是,市盈率可能相當高,需要進一步調查才能確定是否合理。
舉個例子,Shineroad International Holdings去年收益下降,這完全不理想。一個可能的原因是P/E很高,因爲投資者認爲公司在近期能夠表現優於整個市場。如果不是這樣,那麼現有股東可能會對股價的可行性感到非常緊張。
儘管沒有Shineroad International Holdings的分析師預測可用,但可以查看這個免費的數據豐富的可視化工具,了解該公司在收益、營業收入和現金流方面的情況。
增長是否符合高市盈率?
只有當公司的增長有望明顯超過市場時,您才會真正看到像Shineroad International Holdings這樣陡峭的市盈率。