Little Excitement Around The United Laboratories International Holdings Limited's (HKG:3933) Earnings

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 13x, you may consider The United Laboratories International Holdings Limited (HKG:3933) as an attractive investment with its 7.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for United Laboratories International Holdings as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for United Laboratories International Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on United Laboratories International Holdings.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, United Laboratories International Holdings would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 5.3%. Pleasingly, EPS has also lifted 186% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 2.4% per year during the coming three years according to the ten analysts following the company. Meanwhile, the broader market is forecast to expand by 15% per annum, which paints a poor picture.

In light of this, it's understandable that United Laboratories International Holdings' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

We've established that United Laboratories International Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for United Laboratories International Holdings (2 are concerning!) that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.