Why We're Not Concerned About SINOPEC Engineering (Group) Co., Ltd.'s (HKG:2386) Share Price

It's not a stretch to say that SINOPEC Engineering (Group) Co., Ltd.'s (HKG:2386) price-to-earnings (or "P/E") ratio of 9.5x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 10x. 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.

Recent times have been advantageous for SINOPEC Engineering (Group) as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for SINOPEC Engineering (Group)

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How Is SINOPEC Engineering (Group)'s Growth Trending?

The only time you'd be comfortable seeing a P/E like SINOPEC Engineering (Group)'s is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a decent 4.3% gain to the company's bottom line. Still, lamentably EPS has fallen 4.7% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 11% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 12% each year, which is not materially different.

With this information, we can see why SINOPEC Engineering (Group) is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

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

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of SINOPEC Engineering (Group)'s analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for SINOPEC Engineering (Group) (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of SINOPEC Engineering (Group)'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.