Hainan Airport Infrastructure Co., Ltd's (SHSE:600515) Shareholders Might Be Looking For Exit

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Hainan Airport Infrastructure Co., Ltd (SHSE:600515) as a stock to potentially avoid with its 41.4x 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.

While the market has experienced earnings growth lately, Hainan Airport Infrastructure's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Hainan Airport Infrastructure

Want the full picture on analyst estimates for the company? Then our free report on Hainan Airport Infrastructure will help you uncover what's on the horizon.

How Is Hainan Airport Infrastructure's Growth Trending?

In order to justify its P/E ratio, Hainan Airport Infrastructure would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 21% per year during the coming three years according to the dual analysts following the company. With the market predicted to deliver 24% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Hainan Airport Infrastructure's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Hainan Airport Infrastructure's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Hainan Airport Infrastructure (1 is a bit concerning!) that you need to take into consideration.

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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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.

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