With a price-to-earnings (or "P/E") ratio of 49.1x COSCO SHIPPING International (Singapore) Co., Ltd. (SGX:F83) may be sending very bearish signals at the moment, given that almost half of all companies in Singapore have P/E ratios under 10x and even P/E's lower than 6x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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With earnings growth that's exceedingly strong of late, COSCO SHIPPING International (Singapore) has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for COSCO SHIPPING International (Singapore)

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

How Is COSCO SHIPPING International (Singapore)'s Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like COSCO SHIPPING International (Singapore)'s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 188% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 82% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's an unpleasant look.

In light of this, it's alarming that COSCO SHIPPING International (Singapore)'s P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that COSCO SHIPPING International (Singapore) currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - COSCO SHIPPING International (Singapore) has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than COSCO SHIPPING International (Singapore). 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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