Risks Still Elevated At These Prices As Hong Kong Technology Venture Company Limited (HKG:1137) Shares Dive 26%

Unfortunately for some shareholders, the Hong Kong Technology Venture Company Limited (HKG:1137) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 65% share price decline.

Although its price has dipped substantially, Hong Kong Technology Venture may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.2x, since almost half of all companies in Hong Kong have P/E ratios under 8x and even P/E's lower than 4x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Hong Kong Technology Venture certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Hong Kong Technology Venture

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hong Kong Technology Venture.

Is There Enough Growth For Hong Kong Technology Venture?

The only time you'd be truly comfortable seeing a P/E as high as Hong Kong Technology Venture's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 183%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the lone analyst watching the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

In light of this, it's alarming that Hong Kong Technology Venture's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Hong Kong Technology Venture's P/E hasn't come down all the way after its stock plunged. 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 Hong Kong Technology Venture's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Hong Kong Technology Venture with six simple checks will allow you to discover any risks that could be an issue.

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.