Stock Analysis

Zhaobangji Properties Holdings Limited's (HKG:1660) Price In Tune With Earnings

SEHK:1660
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When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 11x, you may consider Zhaobangji Properties Holdings Limited (HKG:1660) as a stock to avoid entirely with its 66.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's exceedingly strong of late, Zhaobangji Properties Holdings has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Zhaobangji Properties Holdings

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SEHK:1660 Price Based on Past Earnings May 24th 2021
Although there are no analyst estimates available for Zhaobangji Properties Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Zhaobangji Properties Holdings' Growth Trending?

In order to justify its P/E ratio, Zhaobangji Properties Holdings would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 178% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Zhaobangji Properties Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

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 Zhaobangji Properties Holdings maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Zhaobangji Properties Holdings that we have uncovered.

If you're unsure about the strength of Zhaobangji Properties Holdings' 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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Valuation is complex, but we're helping make it simple.

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