Market Cool On United Energy Group Limited's (HKG:467) Earnings

It's not a stretch to say that United Energy Group Limited's (HKG:467) price-to-earnings (or "P/E") ratio of 7.3x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, United Energy Group has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for United Energy Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on United Energy Group.

Is There Some Growth For United Energy Group?

In order to justify its P/E ratio, United Energy Group would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 8.0%. This was backed up an excellent period prior to see EPS up by 104% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 23% per annum as estimated by the three analysts watching the company. With the market only predicted to deliver 16% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that United Energy Group's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

We've established that United Energy Group 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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for United Energy Group (1 can't be ignored!) that you should be aware of.

You might be able to find a better investment than United Energy Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.