There's Reason For Concern Over Sino-Entertainment Technology Holdings Limited's (HKG:6933) Price

With a median price-to-earnings (or "P/E") ratio of close to 12x in Hong Kong, you could be forgiven for feeling indifferent about Sino-Entertainment Technology Holdings Limited's (HKG:6933) P/E ratio of 11.3x. 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.

It looks like earnings growth has deserted Sino-Entertainment Technology Holdings recently, which is not something to boast about. It might be that many expect the uninspiring earnings performance to only match most other companies at best over the coming period, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Sino-Entertainment Technology Holdings

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 Sino-Entertainment Technology Holdings' earnings, revenue and cash flow.

Is There Some Growth For Sino-Entertainment Technology Holdings?

In order to justify its P/E ratio, Sino-Entertainment Technology Holdings would need to produce growth that's similar to the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. However, a few strong years before that means that it was still able to grow EPS by an impressive 61% 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.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it interesting that Sino-Entertainment Technology Holdings is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Sino-Entertainment Technology Holdings revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Sino-Entertainment Technology Holdings (1 is significant) you should be aware of.

If these risks are making you reconsider your opinion on Sino-Entertainment Technology Holdings, 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. 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.
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