The Market Doesn't Like What It Sees From Huaneng Power International, Inc.'s (HKG:902) Earnings Yet
Huaneng Power International, Inc.'s (HKG:902) price-to-earnings (or "P/E") ratio of 7x might make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 24x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Huaneng Power International certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Huaneng Power International
Is There Any Growth For Huaneng Power International?
In order to justify its P/E ratio, Huaneng Power International would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 279% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Looking ahead now, EPS is anticipated to climb by 0.2% during the coming year according to the ten analysts following the company. With the market predicted to deliver 21% growth , the company is positioned for a weaker earnings result.
In light of this, it's understandable that Huaneng Power International's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Huaneng Power International's P/E?
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.
We've established that Huaneng Power International maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
You always need to take note of risks, for example - Huaneng Power International has 2 warning signs we think you should be aware of.
Of course, you might also be able to find a better stock than Huaneng Power International. 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.