What Yeebo (International Holdings) Limited's (HKG:259) 26% Share Price Gain Is Not Telling You

Yeebo (International Holdings) Limited (HKG:259) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 42% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Yeebo (International Holdings)'s P/E ratio of 12.3x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Yeebo (International Holdings)'s receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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How Is Yeebo (International Holdings)'s Growth Trending?

In order to justify its P/E ratio, Yeebo (International Holdings) would need to produce growth that's similar to the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 64%. This means it has also seen a slide in earnings over the longer-term as EPS is down 30% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 20% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Yeebo (International Holdings) is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

What We Can Learn From Yeebo (International Holdings)'s P/E?

Yeebo (International Holdings) appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

We've established that Yeebo (International Holdings) currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for Yeebo (International Holdings) (1 is concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Yeebo (International Holdings), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.