COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) Looks Just Right With A 27% Price Jump

COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, COSCO SHIPPING Energy Transportation's price-to-earnings (or "P/E") ratio of 12.2x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 9x and even P/E's below 5x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, COSCO SHIPPING Energy Transportation has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for COSCO SHIPPING Energy Transportation

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How Is COSCO SHIPPING Energy Transportation's Growth Trending?

In order to justify its P/E ratio, COSCO SHIPPING Energy Transportation would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 130% gain to the company's bottom line. The latest three year period has also seen an excellent 36% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 14% each year, which is noticeably less attractive.

With this information, we can see why COSCO SHIPPING Energy Transportation is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From COSCO SHIPPING Energy Transportation's P/E?

COSCO SHIPPING Energy Transportation shares have received a push in the right direction, but its P/E is elevated too. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that COSCO SHIPPING Energy Transportation maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for COSCO SHIPPING Energy Transportation that we have uncovered.

If you're unsure about the strength of COSCO SHIPPING Energy Transportation's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.