Chinese Maritime Transport Ltd. (TWSE:2612) Could Be Riskier Than It Looks

There wouldn't be many who think Chinese Maritime Transport Ltd.'s (TWSE:2612) price-to-earnings (or "P/E") ratio of 19.3x is worth a mention when the median P/E in Taiwan is similar at about 21x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Chinese Maritime Transport hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for Chinese Maritime Transport

Want the full picture on analyst estimates for the company? Then our free report on Chinese Maritime Transport will help you uncover what's on the horizon.

How Is Chinese Maritime Transport's Growth Trending?

The only time you'd be comfortable seeing a P/E like Chinese Maritime Transport's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 5.1% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 40% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 50% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

With this information, we find it interesting that Chinese Maritime Transport is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Chinese Maritime Transport's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Chinese Maritime Transport's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Chinese Maritime Transport (1 makes us a bit uncomfortable!) that you should be aware of.

Of course, you might also be able to find a better stock than Chinese Maritime Transport. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.