There's Reason For Concern Over Hutchison Port Holdings Trust's (SGX:NS8U) Price

Hutchison Port Holdings Trust's (SGX:NS8U) price-to-earnings (or "P/E") ratio of 17.9x might make it look like a sell right now compared to the market in Singapore, where around half of the companies have P/E ratios below 15x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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With earnings growth that's superior to most other companies of late, Hutchison Port Holdings Trust has been doing relatively well. 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.

Check out our latest analysis for Hutchison Port Holdings Trust

Keen to find out how analysts think Hutchison Port Holdings Trust's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Hutchison Port Holdings Trust?

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 155% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 55% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 2.1% per year over the next three years. With the market predicted to deliver 9.3% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Hutchison Port Holdings Trust is trading at a P/E higher than the market. 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 Final Word

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 Hutchison Port Holdings Trust's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places 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 Hutchison Port Holdings Trust that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.