National United Resources Holdings Limited (HKG:254)’s business lagged the market, but its shares did not
There wouldn’t be many who would think National United Resources Holdings Limited (HKG:254) The price/earnings ratio (or “P/E”) of 7.6x is worth mentioning while the median P/E in Hong Kong is similar at around 9x. However, investors could overlook a clear opportunity or potential setback if there is no rational basis for the P/E.
The recent times have been quite beneficial for National United Resources Holdings as its profits have grown very rapidly. Many may expect the strong earnings performance to decline, which has kept the P/E from rising. If that doesn’t happen, existing shareholders have reason to be optimistic about the future direction of the stock price.
Check out our latest analysis for National United Resources Holdings
Want a complete picture of the company’s profits, revenue, and cash flow? Then our free report on National United Resources Holdings will help you shed light on its historical performance.
Does the growth match the P/E?
In order to justify its P/E ratio, National United Resources Holdings should produce market-like growth.
Looking back, we see that the company increased its earnings per share by 49% last year. However, its longer-term performance has not been as strong, with three-year EPS growth being relatively non-existent overall. As a result, shareholders would probably not have been too pleased with the unstable medium-term growth rates.
Comparing that to the market, which is expected to grow 19% over the next 12 months, the company’s momentum is weaker based on recent mid-term annualized results.
With this information, we find it interesting that National United Resources Holdings is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay for exposure to the stock. Maintaining these prices will be difficult to achieve as the continuation of recent earnings trends is likely to weigh on futures stocks.
The end result of National United Resources Holdings’ P/E
Generally, we prefer to limit the use of the price/earnings ratio to establishing what the market thinks of the overall health of a company.
We have established that National United Resources Holdings is currently trading at a higher than expected P/E as its recent three-year growth is below broader market expectations. When we see weak earnings with slower growth than the market, we suspect the stock price may decline, lowering the moderate P/E. Unless recent medium-term conditions improve, it is difficult to accept these prices as reasonable.
You should always think about the risks. Concrete example, we spotted 5 warning signs for National United Resources Holdings you should know, and 4 of them make us uncomfortable.
You may be able to find a better investment than National United Resources Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on less than 20x P/E (but have proven they can increase earnings).
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.