Pacific Textiles Holdings Limited (HKG:1382) Screens Well But There Might Be A Catch

With a price-to-earnings (or "P/E") ratio of 10.5x Pacific Textiles Holdings Limited (HKG:1382) may be sending bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 24x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings growth that's inferior to most other companies of late, Pacific Textiles Holdings has been relatively sluggish. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Pacific Textiles Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pacific Textiles Holdings.

What Are Growth Metrics Telling Us About The Low P/E?

Pacific Textiles Holdings' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 70% drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the lone analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 15% each year, which is noticeably less attractive.

With this information, we find it odd that Pacific Textiles Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Pacific Textiles 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 Pacific Textiles Holdings currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Pacific Textiles Holdings is showing 2 warning signs in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.