Stock Analysis

Some Shareholders Feeling Restless Over Chi Kan Holdings Limited's (HKG:9913) P/E Ratio

SEHK:9913
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With a price-to-earnings (or "P/E") ratio of 71.3x Chi Kan Holdings Limited (HKG:9913) may be sending very bearish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios under 10x and even P/E's lower than 5x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, Chi Kan Holdings' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, 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.

See our latest analysis for Chi Kan Holdings

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SEHK:9913 Price Based on Past Earnings July 30th 2021
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Chi Kan Holdings will help you shine a light on its historical performance.

Is There Enough Growth For Chi Kan Holdings?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Chi Kan Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 46% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's an unpleasant look.

With this information, we find it concerning that Chi Kan Holdings is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Chi Kan Holdings' P/E

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 Chi Kan Holdings currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Chi Kan Holdings that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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