Adtiger Corporations Limited's (HKG:1163) Share Price Could Signal Some Risk

Adtiger Corporations Limited's (HKG:1163) price-to-earnings (or "P/E") ratio of 11.5x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 8x and even P/E's below 4x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been quite advantageous for Adtiger Corporations as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Adtiger Corporations

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Adtiger Corporations' earnings, revenue and cash flow.

Is There Enough Growth For Adtiger Corporations?

The only time you'd be truly comfortable seeing a P/E as high as Adtiger Corporations' 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 102%. However, this wasn't enough as the latest three year period has seen a very unpleasant 84% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 23% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Adtiger Corporations' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Adtiger Corporations' P/E?

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 Adtiger Corporations revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You need to take note of risks, for example - Adtiger Corporations has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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

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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.