The Market Doesn't Like What It Sees From Qingdao Port International Co., Ltd.'s (HKG:6198) Earnings Yet

Explore Qingdao Port International's Fair Values from the Community and select yours

With a price-to-earnings (or "P/E") ratio of 7.4x Qingdao Port International Co., Ltd. (HKG:6198) 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 28x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Qingdao Port International certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

See our latest analysis for Qingdao Port International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Qingdao Port International.

Is There Any Growth For Qingdao Port International?

The only time you'd be truly comfortable seeing a P/E as low as Qingdao Port International's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 7.8%. Pleasingly, EPS has also lifted 32% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 0.4% each year over the next three years. Meanwhile, the broader market is forecast to expand by 15% each year, which paints a poor picture.

In light of this, it's understandable that Qingdao Port International's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Qingdao Port International's 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.

We've established that Qingdao Port International maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Qingdao Port International that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.