Beijing Enterprises Environment Group Limited's (HKG:154) Low P/E No Reason For Excitement

Simply Wall St · 09/29 02:42

Beijing Enterprises Environment Group Limited's (HKG:154) price-to-earnings (or "P/E") ratio of 2.4x might make it look like a strong buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 10x and even P/E's above 19x 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 so limited.

For instance, Beijing Enterprises Environment Group's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Beijing Enterprises Environment Group

pe-multiple-vs-industry
SEHK:154 Price to Earnings Ratio vs Industry September 29th 2024
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Beijing Enterprises Environment Group's earnings, revenue and cash flow.

How Is Beijing Enterprises Environment Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Beijing Enterprises Environment Group's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. Still, the latest three year period has seen an excellent 39% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Beijing Enterprises Environment Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

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 Beijing Enterprises Environment Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Beijing Enterprises Environment Group (including 1 which shouldn't be ignored).

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.