There's No Escaping Flying Financial Service Holdings Limited's (HKG:8030) Muted Earnings Despite A 47% Share Price Rise

Flying Financial Service Holdings Limited (HKG:8030) shareholders have had their patience rewarded with a 47% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Even after such a large jump in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may still consider Flying Financial Service Holdings as a highly attractive investment with its 2.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Flying Financial Service Holdings 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Flying Financial Service Holdings

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Flying Financial Service Holdings' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Flying Financial Service Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 308% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Flying Financial Service Holdings is trading at a P/E lower than the market. 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 Final Word

Even after such a strong price move, Flying Financial Service Holdings' P/E still trails the rest of the market significantly. 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 Flying Financial Service Holdings 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.

Plus, you should also learn about these 5 warning signs we've spotted with Flying Financial Service Holdings (including 3 which are concerning).

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.

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