TravelSky Technology Limited's (HKG:696) Stock Retreats 36% But Earnings Haven't Escaped The Attention Of Investors

TravelSky Technology Limited (HKG:696) shareholders that were waiting for something to happen have been dealt a blow with a 36% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

Although its price has dipped substantially, TravelSky Technology may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 15.4x, 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, TravelSky Technology has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for TravelSky Technology

Want the full picture on analyst estimates for the company? Then our free report on TravelSky Technology will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

TravelSky Technology's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 92%. Pleasingly, EPS has also lifted 77% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 22% per annum during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

With this information, we can see why TravelSky Technology is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From TravelSky Technology's P/E?

Even after such a strong price drop, TravelSky Technology's P/E still exceeds the rest of the market significantly. 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.

As we suspected, our examination of TravelSky Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for TravelSky Technology with six simple checks.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.