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華爾街日報Investors Appear Satisfied With Hong Leong Asia Ltd.'s (SGX:H22) Prospects As Shares Rocket 28%
Hong Leong Asia Ltd. (SGX:H22) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The annual gain comes to 187% following the latest surge, making investors sit up and take notice.
Since its price has surged higher, Hong Leong Asia may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 21x, since almost half of all companies in Singapore have P/E ratios under 14x and even P/E's lower than 9x 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 as high as it is.
Recent times have been advantageous for Hong Leong Asia as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Hong Leong Asia
How Is Hong Leong Asia's Growth Trending?
There's an inherent assumption that a company should outperform the market for P/E ratios like Hong Leong Asia's to be considered reasonable.
Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Pleasingly, EPS has also lifted 52% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the three analysts watching the company. With the market only predicted to deliver 9.8% per year, the company is positioned for a stronger earnings result.
With this information, we can see why Hong Leong Asia is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Hong Leong Asia's P/E
Hong Leong Asia's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Hong Leong Asia's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Hong Leong Asia with six simple checks on some of these key factors.
Of course, you might also be able to find a better stock than Hong Leong Asia. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.