Pinning Down CITIC Telecom International Holdings Limited's (HKG:1883) P/E Is Difficult Right Now

With a median price-to-earnings (or "P/E") ratio of close to 10x in Hong Kong, you could be forgiven for feeling indifferent about CITIC Telecom International Holdings Limited's (HKG:1883) P/E ratio of 8.4x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent earnings growth for CITIC Telecom International Holdings has been in line with the market. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Check out our latest analysis for CITIC Telecom International Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CITIC Telecom International Holdings.

Is There Some Growth For CITIC Telecom International Holdings?

There's an inherent assumption that a company should be matching the market for P/E ratios like CITIC Telecom International Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 3.1%. EPS has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 1.7% per annum as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 16% per year, which is noticeably more attractive.

In light of this, it's curious that CITIC Telecom International Holdings' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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 CITIC Telecom International Holdings currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for CITIC Telecom International Holdings with six simple checks on some of these key factors.

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.