The Market Lifts COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) Shares 41% But It Can Do More

COSCO SHIPPING Energy Transportation Co., Ltd. (HKG:1138) shares have had a really impressive month, gaining 41% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 27%.

Even after such a large jump in price, it's still not a stretch to say that COSCO SHIPPING Energy Transportation's price-to-earnings (or "P/E") ratio of 12.2x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent earnings growth for COSCO SHIPPING Energy Transportation has been in line with the market. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

See our latest analysis for COSCO SHIPPING Energy Transportation

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How Is COSCO SHIPPING Energy Transportation's Growth Trending?

COSCO SHIPPING Energy Transportation's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. That's essentially a continuation of what we've seen over the last three years, as its EPS growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the nine analysts watching the company. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.

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 Key Takeaway

COSCO SHIPPING Energy Transportation's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that COSCO SHIPPING Energy Transportation currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for COSCO SHIPPING Energy Transportation that you should be aware of.

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.