COSCO SHIPPING Technology Co., Ltd. (SZSE:002401) Investors Are Less Pessimistic Than Expected

It's not a stretch to say that COSCO SHIPPING Technology Co., Ltd.'s (SZSE:002401) price-to-earnings (or "P/E") ratio of 28.3x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 28x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

We'd have to say that with no tangible growth over the last year, COSCO SHIPPING Technology's earnings have been unimpressive. It might be that many expect the uninspiring earnings performance to only match most other companies at best over the coming period, which has kept the P/E from rising. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

Check out our latest analysis for COSCO SHIPPING Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on COSCO SHIPPING Technology will help you shine a light on its historical performance.

How Is COSCO SHIPPING Technology's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like COSCO SHIPPING Technology's to be considered reasonable.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow EPS by 23% in total over the last three years. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 36% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that COSCO SHIPPING Technology's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Key Takeaway

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.

We've established that COSCO SHIPPING Technology currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - COSCO SHIPPING Technology has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're unsure about the strength of COSCO SHIPPING Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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