Earnings Not Telling The Story For ANTA Sports Products Limited (HKG:2020)

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider ANTA Sports Products Limited (HKG:2020) as a stock to avoid entirely with its 21.9x 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 so lofty.

With earnings growth that's superior to most other companies of late, ANTA Sports Products has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for ANTA Sports Products

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ANTA Sports Products.

Is There Enough Growth For ANTA Sports Products?

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

If we review the last year of earnings growth, the company posted a terrific increase of 31%. The strong recent performance means it was also able to grow EPS by 88% 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.

Looking ahead now, EPS is anticipated to climb by 16% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 16% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it interesting that ANTA Sports Products is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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 ANTA Sports Products currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for ANTA Sports Products with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of ANTA Sports Products' 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.