Earnings Not Telling The Story For Hutchison Port Holdings Trust (SGX:NS8U)

With a price-to-earnings (or "P/E") ratio of 16.7x Hutchison Port Holdings Trust (SGX:NS8U) may be sending bearish signals at the moment, given that almost half of all companies in Singapore have P/E ratios under 11x and even P/E's lower than 7x are not unusual. 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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Hutchison Port Holdings Trust certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Hutchison Port Holdings Trust's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 178% gain to the company's bottom line. Still, incredibly EPS has fallen 63% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 3.6% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 7.9% per year growth forecast for the broader market.

In light of this, it's alarming that Hutchison Port Holdings Trust's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

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.

We've established that Hutchison Port Holdings Trust currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Hutchison Port Holdings Trust (1 is concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Hutchison Port Holdings Trust, 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.