Southeast Asia Properties & Finance Limited (HKG:252) shareholders who were waiting for something to happen have been hit with a 32% drop in the share price last month. Instead of being rewarded, shareholders who held for the last 12 months are now seeing the share price fall by 41%.
Even after such a large drop in its share price, Southeast Asia Properties & Finance's price-to-earnings (P/E) ratio is currently 7.6x, which is fair to say is fairly “moderate” when compared to the Hong Kong market (where the median P/E is around 9x). This may not be a big deal, but if the P/E is not justified, investors could be missing out on a potential opportunity or ignoring a looming disappointment.
These days have been very lucrative for Southeast Properties & Finance as revenue has been growing at a rapid clip. Many are expecting this strength to fade, which could prevent the price-to-earnings multiple from growing. If that doesn't happen, existing shareholders have reason to be optimistic about the future direction of the stock.
Check out our latest analysis on Southeast Asia Real Estate and Finance
SEHK:252 Price to Earnings Ratio vs. Industry 19 August 2024 While we don't have analyst forecasts, you can see how recent trends are setting the company up for the future by checking this free report on Southeast Asia Properties & Finance's earnings, revenue and cash flow.
What do growth metrics tell us about the P/E ratio?
The assumption is essentially that for a company like Southeast Asia Properties & Finance's P/E ratio to be considered reasonable, the company's price-to-earnings ratio (P/E) must be in line with the market.
Looking back, the company saw its earnings per share grow by an impressive 103% over the last year. Pleasantly, the growth over the past 12 months has also meant that EPS has risen by a total of 800% compared to three years ago. So shareholders have likely welcomed this medium-term rate of earnings growth.
Compared to the market, which is expected to grow by just 19% over the next 12 months, the company's momentum is stronger based on recent mid-year annual earnings results.
With this information, we find it interesting that Southeast Properties & Finance is trading at a P/E that's roughly in line with the market. It seems likely that some shareholders believe recent performance has reached its limit and are willing to accept a lower sale price.
Final Words
Due to the sharp decline in its share price, Southeast Properties & Finance's P/E is now fairly average, and while one should generally refrain from placing undue importance on the P/E when making an investment decision, it can give us a good idea of what other market participants think of the company.
A survey by Southeast Asia Properties & Finance revealed that the company's three-year earnings trend is better than current market expectations, but is not contributing as much to the price-to-earnings ratio (P/E) as expected. We speculate that if there is strong earnings performance accompanied by above-market growth, it is the potential risk that is putting pressure on the P/E. As long as the recent medium-term earnings trend continues, the risk of a share price downturn will at least be contained, but investors seem to think that there may be some volatility in future earnings.
Having said that, we do note that Southeast Asia Properties & Finance is showing 2 warning signs in our investment analysis.
Of course, you might find a great investment by looking at several promising candidates, so take a peek at this free list of companies trading on a low P/E and with a strong track record of growth.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
