Greentown Service Group Co. Ltd. (HKG:2869) Not Lagging Market On Growth Or Pricing

Greentown Service Group Co. Ltd.'s (HKG:2869) price-to-earnings (or "P/E") ratio of 12.4x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 9x and even P/E's below 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

There hasn't been much to differentiate Greentown Service Group's and the market's retreating earnings lately. It might be that many expect the company's earnings to strengthen positively despite the tough market conditions, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Greentown Service Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Greentown Service Group.

Is There Enough Growth For Greentown Service Group?

The only time you'd be truly comfortable seeing a P/E as high as Greentown Service Group's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 2.7% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 10% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 16% each year growth forecast for the broader market.

With this information, we can see why Greentown Service Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Greentown Service Group'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 Greentown Service Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Greentown Service Group that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.