Xtep International Holdings Limited (HKG:1368) Not Lagging Market On Growth Or Pricing

With a median price-to-earnings (or "P/E") ratio of close to 9x in Hong Kong, you could be forgiven for feeling indifferent about Xtep International Holdings Limited's (HKG:1368) P/E ratio of 9.9x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Xtep International Holdings 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 wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Xtep International Holdings

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Does Growth Match The P/E?

In order to justify its P/E ratio, Xtep International Holdings would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. This was backed up an excellent period prior to see EPS up by 95% 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.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 13% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is not materially different.

In light of this, it's understandable that Xtep International Holdings' P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Xtep International Holdings' P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Xtep International Holdings' 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Xtep International Holdings that you need to be mindful 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 low P/E).

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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.