Further Upside For COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) Shares Could Introduce Price Risks After 29% Bounce

COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 3.9% over the last year.

Although its price has surged higher, there still wouldn't be many who think COSCO SHIPPING Energy Transportation's price-to-earnings (or "P/E") ratio of 11.2x is worth a mention when the median P/E in Hong Kong is similar at about 10x. 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.

While the market has experienced earnings growth lately, COSCO SHIPPING Energy Transportation's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for COSCO SHIPPING Energy Transportation

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How Is COSCO SHIPPING Energy Transportation's Growth Trending?

The only time you'd be comfortable seeing a P/E like COSCO SHIPPING Energy Transportation's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 33%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 61% as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 22% growth forecast for the broader market.

With this information, we find it interesting that COSCO SHIPPING Energy Transportation is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On COSCO SHIPPING Energy Transportation's P/E

Its shares have lifted substantially and now COSCO SHIPPING Energy Transportation's P/E is also back up to the market median. 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.

Our examination of COSCO SHIPPING Energy Transportation's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for COSCO SHIPPING Energy Transportation you should know about.

If these risks are making you reconsider your opinion on COSCO SHIPPING Energy Transportation, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.