When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 13x, you may consider Qinhuangdao Port Co., Ltd. (HKG:3369) as an attractive investment with its 7.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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As an illustration, earnings have deteriorated at Qinhuangdao Port over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Qinhuangdao Port

Although there are no analyst estimates available for Qinhuangdao Port, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Qinhuangdao Port?

In order to justify its P/E ratio, Qinhuangdao Port would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 49% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Qinhuangdao Port 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

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Qinhuangdao Port 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Qinhuangdao Port that you should be aware of.

Of course, you might also be able to find a better stock than Qinhuangdao Port. 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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