Even With A 25% Surge, Cautious Investors Are Not Rewarding Energy International Investments Holdings Limited's (HKG:353) Performance Completely

Energy International Investments Holdings Limited (HKG:353) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 55% share price decline over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Energy International Investments Holdings' P/E ratio of 8.8x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For example, consider that Energy International Investments Holdings' financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Energy International Investments Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Energy International Investments Holdings will help you shine a light on its historical performance.

Is There Some Growth For Energy International Investments Holdings?

The only time you'd be comfortable seeing a P/E like Energy International Investments Holdings' 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 55%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 542% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Energy International Investments Holdings' P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Energy International Investments Holdings' P/E

Energy International Investments Holdings appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Energy International Investments Holdings revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Energy International Investments Holdings (1 doesn't sit too well with us!) that we have uncovered.

Of course, you might also be able to find a better stock than Energy International Investments Holdings. 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.