Chow Sang Sang Holdings International Limited's (HKG:116) Price Is Right But Growth Is Lacking After Shares Rocket 73%

The Chow Sang Sang Holdings International Limited (HKG:116) share price has done very well over the last month, posting an excellent gain of 73%. The annual gain comes to 123% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Chow Sang Sang Holdings International as an attractive investment with its 8.1x 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 limited.

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Chow Sang Sang Holdings International certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

See our latest analysis for Chow Sang Sang Holdings International

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Chow Sang Sang Holdings International would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 62%. Pleasingly, EPS has also lifted 73% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 13% over the next year. Meanwhile, the rest of the market is forecast to expand by 19%, which is noticeably more attractive.

With this information, we can see why Chow Sang Sang Holdings International is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Chow Sang Sang Holdings International's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Chow Sang Sang Holdings International maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Chow Sang Sang Holdings International that you should be aware of.

Of course, you might also be able to find a better stock than Chow Sang Sang Holdings International. 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.