Why Investors Shouldn't Be Surprised By SITC International Holdings Company Limited's (HKG:1308) Low P/E

With a price-to-earnings (or "P/E") ratio of 7.5x SITC International Holdings Company Limited (HKG:1308) may be sending bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 25x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Recent times have been advantageous for SITC International Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you 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.

Check out our latest analysis for SITC International Holdings

Keen to find out how analysts think SITC International Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For SITC International Holdings?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 128% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 30% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 12% per annum as estimated by the eight analysts watching the company. With the market predicted to deliver 15% growth each year, that's a disappointing outcome.

In light of this, it's understandable that SITC International Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of SITC International Holdings' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for SITC International Holdings (1 shouldn't be ignored!) that you should be aware of before investing here.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.