Getting In Cheap On Geely Automobile Holdings Limited (HKG:175) Might Be Difficult

With a median price-to-earnings (or "P/E") ratio of close to 13x in Hong Kong, you could be forgiven for feeling indifferent about Geely Automobile Holdings Limited's (HKG:175) P/E ratio of 12.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's superior to most other companies of late, Geely Automobile Holdings has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Geely Automobile Holdings

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Geely Automobile Holdings would need to produce growth that's similar to the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.0% last year. The latest three year period has also seen an excellent 281% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 14% per year during the coming three years according to the analysts following the company. With the market predicted to deliver 15% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Geely Automobile Holdings' P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Geely Automobile Holdings' P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Geely Automobile Holdings' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Geely Automobile Holdings with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.