Flat Glass Group Co., Ltd. (HKG:6865) Not Lagging Market On Growth Or Pricing

It's not a stretch to say that Flat Glass Group Co., Ltd.'s (HKG:6865) price-to-earnings (or "P/E") ratio of 8x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 10x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Flat Glass Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Flat Glass Group

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

Does Growth Match The P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. EPS has also lifted 16% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 10% per year over the next three years. With the market predicted to deliver 12% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Flat Glass Group's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Flat Glass Group's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Flat Glass Group's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Flat Glass Group, and understanding these should be part of your investment process.

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.