Some Confidence Is Lacking In Uni-President China Holdings Ltd's (HKG:220) P/E

With a price-to-earnings (or "P/E") ratio of 15.5x Uni-President China Holdings Ltd (HKG:220) may be sending bearish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios under 12x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Uni-President China Holdings as its earnings have been rising faster 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.

Check out our latest analysis for Uni-President China Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Uni-President China Holdings.

How Is Uni-President China Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Uni-President China Holdings' 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 24%. The latest three year period has also seen an excellent 71% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 6.7% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 14% each year growth forecast for the broader market.

In light of this, it's alarming that Uni-President China Holdings' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Uni-President China Holdings' P/E

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.

Our examination of Uni-President China Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Uni-President China Holdings that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.