Earnings Tell The Story For COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) As Its Stock Soars 26%

Despite an already strong run, COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 56% in the last year.

After such a large jump in price, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider COSCO SHIPPING Energy Transportation as a stock to potentially avoid with its 13.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

COSCO SHIPPING Energy Transportation certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for COSCO SHIPPING Energy Transportation

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Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as COSCO SHIPPING Energy Transportation's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 38%. The latest three year period has also seen an excellent 67% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 25% per year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 16% each year growth forecast for the broader market.

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.

The Final Word

The large bounce in COSCO SHIPPING Energy Transportation's shares has lifted the company's P/E to a fairly high level. 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 COSCO SHIPPING Energy Transportation's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Plus, you should also learn about these 2 warning signs we've spotted with COSCO SHIPPING Energy Transportation.

Of course, you might also be able to find a better stock than COSCO SHIPPING Energy Transportation. 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.