Blog

With a price-earnings ratio (P/E) of 19x TravelSky Technology Limited (HKG:696) may be sending very bearish signals right now, as nearly half of all companies in Hong Kong have a P/E ratio below 9x, and even P/E ratios below 5x are not uncommon. Still, we would have to dig a little deeper to determine if there is a rational basis for the greatly elevated P/E ratio.

The recent past has been beneficial for TravelSky Technology, as the company’s earnings have grown faster than most other companies. Many seem to expect the strong earnings performance to continue, which has increased the P/E ratio. One would really hope so, otherwise one is paying a pretty high price for no particular reason.

Check out our latest analysis for TravelSky Technology

Would you like to know how analysts assess the future of TravelSky Technology compared to the industry? In this case, our free Report is a good starting point.

Is the growth appropriate for the high P/E ratio?

TravelSky Technology’s P/E ratio would be typical of a company expected to have very strong growth and, importantly, significantly outperform the market.

If we look at earnings growth over the last year, the company has seen a fantastic 123% increase. The last three-year period has also seen an excellent overall increase in earnings per share of 286%, helped by short-term performance. Accordingly, shareholders would likely have welcomed these medium-term earnings growth rates.

Looking ahead, the ten analysts covering the company expect earnings to grow 23% per year over the next three years, well above the 16% per year growth forecast for the overall market.

With this information, we can see why TravelSky Technology is trading at such a high P/E compared to the market. It seems shareholders are not interested in offloading something that potentially has a better future ahead of it.

The conclusion on the P/E ratio of TravelSky Technology

Although the price-to-earnings ratio should not be the deciding factor in whether or not you buy a stock, it is a useful indicator of earnings expectations.

As we suspected, our study of TravelSky Technology’s analyst forecasts found that its above-average earnings outlook is contributing to its high P/E ratio. At this point, investors believe that the potential for earnings deterioration is not large enough to justify a lower P/E ratio. Under these circumstances, it’s hard to imagine the share price falling much in the near future.

Many other important risk factors can be found in the company’s balance sheet. Many of the main risks can be identified using our free Balance sheet analysis for TravelSky Technology with six simple checks.

Naturally, If you take a closer look at some good candidates, you may come across a fantastic investment. So take a look at the free List of companies with a strong growth track record and a low P/E ratio.

Do you have feedback on this article? Are you concerned about the content? Get in touch directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]