Optimistic Investors Push World-Link Logistics (Asia) Holding Limited (HKG:6083) Shares Up 28% But Growth Is Lacking

Despite an already strong run, World-Link Logistics (Asia) Holding Limited (HKG:6083) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 137% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 12x, you may consider World-Link Logistics (Asia) Holding as a stock to potentially avoid with its 17.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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World-Link Logistics (Asia) Holding has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for World-Link Logistics (Asia) Holding

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on World-Link Logistics (Asia) Holding will help you shine a light on its historical performance.

How Is World-Link Logistics (Asia) Holding's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like World-Link Logistics (Asia) Holding's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 2.9% last year. EPS has also lifted 6.4% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that World-Link Logistics (Asia) Holding's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From World-Link Logistics (Asia) Holding's P/E?

The large bounce in World-Link Logistics (Asia) Holding's shares has lifted the company's P/E to a fairly high level. 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.

Our examination of World-Link Logistics (Asia) Holding revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with World-Link Logistics (Asia) Holding (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on World-Link Logistics (Asia) Holding, 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.