Market Cool On Sisram Medical Ltd's (HKG:1696) Earnings

It's not a stretch to say that Sisram Medical Ltd's (HKG:1696) price-to-earnings (or "P/E") ratio of 9.8x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 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.

Sisram Medical hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Sisram Medical

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

How Is Sisram Medical's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Sisram Medical's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 39%. This means it has also seen a slide in earnings over the longer-term as EPS is down 8.2% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 26% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 13% per year growth forecast for the broader market.

In light of this, it's curious that Sisram Medical'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

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.

We've established that Sisram Medical 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.

Having said that, be aware Sisram Medical is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than Sisram Medical. 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.