Further Upside For Omnibridge Holdings Limited (HKG:8462) Shares Could Introduce Price Risks After 39% Bounce

Omnibridge Holdings Limited (HKG:8462) shares have continued their recent momentum with a 39% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 48%.

Even after such a large jump in price, Omnibridge Holdings' price-to-earnings (or "P/E") ratio of 3.8x might still make it look like a strong buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 12x and even P/E's above 26x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Omnibridge Holdings has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Omnibridge Holdings

Does Growth Match The Low P/E?

Omnibridge Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 78%. Pleasingly, EPS has also lifted 121% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Omnibridge Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Even after such a strong price move, Omnibridge Holdings' P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Omnibridge Holdings currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Omnibridge Holdings (2 are concerning!) that you should be aware of.

You might be able to find a better investment than Omnibridge Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.