Those holding Pan Hong Holdings Group Limited (SGX:P36) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 32% over that time.

Even after such a large jump in price, given close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") above 11x, you may still consider Pan Hong Holdings Group as a highly attractive investment with its 4.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

As an illustration, earnings have deteriorated at Pan Hong Holdings Group over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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 Pan Hong Holdings Group

SGX:P36 Price Based on Past Earnings September 11th 2022 Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Pan Hong Holdings Group will help you shine a light on its historical performance.

Is There Any Growth For Pan Hong Holdings Group?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Pan Hong Holdings Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 75%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 27% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 4.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Pan Hong Holdings Group 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, Pan Hong Holdings Group's P/E still trails the rest of the market significantly. 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.

We've established that Pan Hong Holdings Group 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Pan Hong Holdings Group (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

You might be able to find a better investment than Pan Hong Holdings Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (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.