The United Laboratories International Holdings Limited's (HKG:3933) Low P/E No Reason For Excitement

The United Laboratories International Holdings Limited's (HKG:3933) price-to-earnings (or "P/E") ratio of 5.3x might make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 10x and even P/E's above 19x 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 limited.

Recent times have been pleasing for United Laboratories International Holdings as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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

Keen to find out how analysts think United Laboratories International Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is United Laboratories International Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as United Laboratories International Holdings' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 127% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 274% 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.

Looking ahead now, EPS is anticipated to slump, contracting by 1.0% per year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 16% growth each year, that's a disappointing outcome.

In light of this, it's understandable that United Laboratories International Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of United Laboratories International Holdings' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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 2 warning signs for United Laboratories International Holdings (1 is potentially serious!) that you need to take into consideration.

Of course, you might also be able to find a better stock than United Laboratories International Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.