The Market Doesn't Like What It Sees From Travel Expert (Asia) Enterprises Limited's (HKG:1235) Earnings Yet

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may consider Travel Expert (Asia) Enterprises Limited (HKG:1235) as an attractive investment with its 7.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Travel Expert (Asia) Enterprises certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Travel Expert (Asia) Enterprises

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Travel Expert (Asia) Enterprises would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 173% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Travel Expert (Asia) Enterprises' P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Travel Expert (Asia) Enterprises' 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 Travel Expert (Asia) Enterprises revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Travel Expert (Asia) Enterprises that you need to take into consideration.

Of course, you might also be able to find a better stock than Travel Expert (Asia) Enterprises. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.