Hang Tai Yue Group Holdings Limited (HKG:8081) May Have Run Too Fast Too Soon With Recent 42% Price Plummet

The Hang Tai Yue Group Holdings Limited (HKG:8081) share price has fared very poorly over the last month, falling by a substantial 42%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

Even after such a large drop in price, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may still consider Hang Tai Yue Group Holdings as a stock to avoid entirely with its 22x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Hang Tai Yue Group Holdings has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Hang Tai Yue Group Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hang Tai Yue Group Holdings will help you shine a light on its historical performance.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Hang Tai Yue Group Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. 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 find it concerning that Hang Tai Yue Group Holdings is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

A significant share price dive has done very little to deflate Hang Tai Yue Group Holdings' very lofty P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Hang Tai Yue Group Holdings revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Hang Tai Yue Group Holdings (of which 1 shouldn't be ignored!) you should know about.

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.