Beijing Enterprises Holdings Limited's (HKG:392) Low P/E No Reason For Excitement

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 13x, you may consider Beijing Enterprises Holdings Limited (HKG:392) as an attractive investment with its 7.6x 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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Recent times have been advantageous for Beijing Enterprises 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Beijing Enterprises Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing Enterprises Holdings.

Is There Any Growth For Beijing Enterprises Holdings?

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

If we review the last year of earnings growth, the company posted a terrific increase of 18%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 27% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 2.9% per year during the coming three years according to the five analysts following the company. With the market predicted to deliver 15% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Beijing Enterprises Holdings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

As we suspected, our examination of Beijing Enterprises Holdings' analyst forecasts revealed that its inferior earnings outlook 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Beijing Enterprises Holdings (of which 1 is a bit concerning!) you should know about.

If these risks are making you reconsider your opinion on Beijing Enterprises Holdings, 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.