Bosideng International Holdings Limited (HKG:3998) Investors Are Less Pessimistic Than Expected

There wouldn't be many who think Bosideng International Holdings Limited's (HKG:3998) price-to-earnings (or "P/E") ratio of 13.9x is worth a mention when the median P/E in Hong Kong is similar at about 12x. 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.

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With earnings growth that's superior to most other companies of late, Bosideng International Holdings has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is Bosideng International Holdings' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Bosideng International Holdings' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. This was backed up an excellent period prior to see EPS up by 59% 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 11% per year during the coming three years according to the analysts following the company. With the market predicted to deliver 14% growth per year, the company is positioned for a weaker earnings result.

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

The Final Word

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.

Our examination of Bosideng International Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for Bosideng International Holdings that you should be aware of.

If you're unsure about the strength of Bosideng International Holdings' 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.