Stock Analysis

MS Group Holdings Limited (HKG:1451) Held Back By Insufficient Growth Even After Shares Climb 43%

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MS Group Holdings Limited (HKG:1451) shares have had a really impressive month, gaining 43% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 53%.

Even after such a large jump in price, MS Group Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.3x, since almost half of all companies in Hong Kong have P/E ratios greater than 12x and even P/E's higher than 27x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

MS Group Holdings has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for MS Group Holdings

SEHK:1451 Price Based on Past Earnings May 20th 2021
Although there are no analyst estimates available for MS Group Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For MS Group Holdings?

There's an inherent assumption that a company should underperform the market for P/E ratios like MS Group Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Still, lamentably EPS has fallen 40% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's an unpleasant look.

In light of this, it's understandable that MS Group Holdings' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

MS Group Holdings' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that MS Group Holdings maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for MS Group Holdings you should be aware of, and 1 of them is significant.

If these risks are making you reconsider your opinion on MS Group Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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