Investors Appear Satisfied With Shangri-La Asia Limited's (HKG:69) Prospects

There wouldn't be many who think Shangri-La Asia Limited's (HKG:69) price-to-earnings (or "P/E") ratio of 12.7x is worth a mention when the median P/E in Hong Kong is similar at about 11x. 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.

We've discovered 2 warning signs about Shangri-La Asia. View them for free.

Shangri-La Asia hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Shangri-La Asia

Want the full picture on analyst estimates for the company? Then our free report on Shangri-La Asia will help you uncover what's on the horizon.

How Is Shangri-La Asia's Growth Trending?

Shangri-La Asia's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the five analysts watching the company. That's shaping up to be similar to the 15% per annum growth forecast for the broader market.

With this information, we can see why Shangri-La Asia is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Shangri-La Asia's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shangri-La Asia (1 is potentially serious!) that you need to be mindful of.

You might be able to find a better investment than Shangri-La Asia. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.