COSCO SHIPPING Ports Limited's (HKG:1199) Shareholders Might Be Looking For Exit

With a median price-to-earnings (or "P/E") ratio of close to 9x in Hong Kong, you could be forgiven for feeling indifferent about COSCO SHIPPING Ports Limited's (HKG:1199) P/E ratio of 7.1x. 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.

With earnings growth that's superior to most other companies of late, COSCO SHIPPING Ports has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for COSCO SHIPPING Ports

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How Is COSCO SHIPPING Ports' Growth Trending?

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

Retrospectively, the last year delivered a decent 7.7% gain to the company's bottom line. Still, lamentably EPS has fallen 12% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 4.2% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 14% per annum, which is noticeably more attractive.

With this information, we find it interesting that COSCO SHIPPING Ports is trading at a fairly similar P/E to the market. 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.

What We Can Learn From COSCO SHIPPING Ports' P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of COSCO SHIPPING Ports' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware COSCO SHIPPING Ports is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on COSCO SHIPPING Ports, 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.