Explore Baguio Green Group's Fair Values from the Community and select yours

Baguio Green Group Limited (HKG:1397) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 41%.

Although its price has surged higher, Baguio Green Group's price-to-earnings (or "P/E") ratio of 6.9x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 27x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's superior to most other companies of late, Baguio Green Group has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Baguio Green Group

Keen to find out how analysts think Baguio Green Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Baguio Green Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Baguio Green Group's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. This was backed up an excellent period prior to see EPS up by 319% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 7.9% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 21%, which is noticeably more attractive.

With this information, we can see why Baguio Green Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Baguio Green Group's P/E?

The latest share price surge wasn't enough to lift Baguio Green Group's P/E close to the market median. 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.

As we suspected, our examination of Baguio Green Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Baguio Green Group that you need to take into consideration.

If you're unsure about the strength of Baguio Green Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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