Hang Lung Properties Limited's (HKG:101) Business Is Yet to Catch Up With Its Share Price

It's not a stretch to say that Hang Lung Properties Limited's (HKG:101) price-to-earnings (or "P/E") ratio of 9.2x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent earnings growth for Hang Lung Properties has been in line with the market. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Check out our latest analysis for Hang Lung Properties

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hang Lung Properties.

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

The only time you'd be comfortable seeing a P/E like Hang Lung Properties' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.5% last year. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 9.7% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

With this information, we find it interesting that Hang Lung Properties is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

Our examination of Hang Lung Properties' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Hang Lung Properties that you should be aware of.

If you're unsure about the strength of Hang Lung Properties' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.