Lacklustre Performance Is Driving COSCO SHIPPING Ports Limited's (HKG:1199) Low P/E

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 11x, you may consider COSCO SHIPPING Ports Limited (HKG:1199) as an attractive investment with its 5.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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COSCO SHIPPING Ports could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for COSCO SHIPPING Ports

If you'd like to see what analysts are forecasting going forward, you should check out our free report on COSCO SHIPPING Ports.

How Is COSCO SHIPPING Ports' Growth Trending?

COSCO SHIPPING Ports' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.1%. This means it has also seen a slide in earnings over the longer-term as EPS is down 18% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 1.9% per annum over the next three years. That's shaping up to be materially lower than the 14% per year growth forecast for the broader market.

With this information, we can see why COSCO SHIPPING Ports is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

We've established that COSCO SHIPPING Ports maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with COSCO SHIPPING Ports, and understanding should be part of your investment process.

If you're unsure about the strength of COSCO SHIPPING Ports' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.