Infinity Logistics and Transport Ventures Limited (HKG:1442) Stock Rockets 37% As Investors Are Less Pessimistic Than Expected

Infinity Logistics and Transport Ventures Limited (HKG:1442) shares have had a really impressive month, gaining 37% after a shaky period beforehand. But the last month did very little to improve the 68% share price decline over the last year.

Since its price has surged higher, Infinity Logistics and Transport Ventures may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 17.1x, since almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Infinity Logistics and Transport Ventures over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Infinity Logistics and Transport Ventures

Although there are no analyst estimates available for Infinity Logistics and Transport Ventures, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Infinity Logistics and Transport Ventures' Growth Trending?

In order to justify its P/E ratio, Infinity Logistics and Transport Ventures would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 33%. This means it has also seen a slide in earnings over the longer-term as EPS is down 32% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 23% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Infinity Logistics and Transport Ventures' P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Infinity Logistics and Transport Ventures' P/E?

Shares in Infinity Logistics and Transport Ventures have built up some good momentum lately, which has really inflated its 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.

Our examination of Infinity Logistics and Transport Ventures revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Infinity Logistics and Transport Ventures that you should be aware of.

You might be able to find a better investment than Infinity Logistics and Transport Ventures. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.