SINOPEC Engineering (Group) Co., Ltd.'s (HKG:2386) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think SINOPEC Engineering (Group) Co., Ltd.'s (HKG:2386) price-to-earnings (or "P/E") ratio of 8.1x is worth a mention when the median P/E in Hong Kong is similar at about 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

There hasn't been much to differentiate SINOPEC Engineering (Group)'s and the market's earnings growth lately. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

Check out our latest analysis for SINOPEC Engineering (Group)

Keen to find out how analysts think SINOPEC Engineering (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For SINOPEC Engineering (Group)?

SINOPEC Engineering (Group)'s P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 1.6% overall from three years ago. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 5.9% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 14% per year, which is noticeably more attractive.

In light of this, it's curious that SINOPEC Engineering (Group)'s P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On SINOPEC Engineering (Group)'s P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that SINOPEC Engineering (Group) currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with SINOPEC Engineering (Group), and understanding should be part of your investment process.

Of course, you might also be able to find a better stock than SINOPEC Engineering (Group). So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.