Improved Earnings Required Before Wanda Hotel Development Company Limited (HKG:169) Shares Find Their Feet

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Wanda Hotel Development Company Limited (HKG:169) as a highly attractive investment with its 3.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Wanda Hotel Development certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Wanda Hotel Development

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 Wanda Hotel Development's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Wanda Hotel Development would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Wanda Hotel Development is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Wanda Hotel Development's P/E

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.

As we suspected, our examination of Wanda Hotel Development revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Wanda Hotel Development with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Wanda Hotel Development's 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.