Lacklustre Performance Is Driving Keen Ocean International Holding Limited's (HKG:8070) Low P/E

With a price-to-earnings (or "P/E") ratio of 5.2x Keen Ocean International Holding Limited (HKG:8070) may be sending very bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 12x and even P/E's higher than 26x are not unusual. 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.

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For example, consider that Keen Ocean International Holding's financial performance has been pretty ordinary lately as earnings growth is non-existent. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Keen Ocean International Holding

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Keen Ocean International Holding will help you shine a light on its historical performance.

How Is Keen Ocean International Holding's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Keen Ocean International Holding's to be considered reasonable.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Still, the latest three year period has seen an excellent 43% overall rise in EPS, in spite of its uninspiring short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 19% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Keen Ocean International Holding's P/E sits below the majority of other companies. 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.

What We Can Learn From Keen Ocean International Holding'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.

We've established that Keen Ocean International Holding maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Keen Ocean International Holding has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.