S-Enjoy Service Group Co., Limited (HKG:1755) is being held back by insufficient growth even after shares surged 33%

The S-Enjoy Service Group Co., Limited (HKG:1755) The share price has performed very well over the past month, with an excellent gain of 33%. Not all shareholders will be cheering, as the share price is still down a very disappointing 33% over the last twelve months.

Even after such a big price jump, S-Enjoy Service Group’s price-to-earnings ratio (or “P/E”) of 5.9x could still make it look like a buy compared to the Hong Kong market right now, where about half of companies have price-to-earnings ratios of more than 10x and even price-to-earnings ratios of more than 19x are quite common. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the lower price-to-earnings ratio.

S-Enjoy Service Group has certainly done a good job lately, as its earnings growth is stronger than most other companies. One possibility is that the price-to-earnings ratio is low because investors think this strong earnings performance may be less impressive in the future. If you like the company, you hope you don’t, so you can potentially pick up some shares while it’s out of favor.

Check out our latest analysis for S-Enjoy Service Group

Want to get the full picture of analyst estimates for the company? Then our free The S-Enjoy Service Group report will help you discover what’s on the horizon.

Does the growth correspond to the low price-earnings ratio?

S-Enjoy Service Group’s price-to-earnings ratio would be typical of a company that is expected to achieve only limited growth and, more importantly, underperform the market.

Looking back first, we see that the company managed to grow earnings per share by a handy 4.9% last year. Still, unfortunately, earnings per share are down 7.6% overall from three years ago, which is disappointing. Shareholders would therefore have felt gloomy about earnings growth in the medium term.

In terms of prospects, the next three years should generate growth of 8.7% per year, as estimated by the nine analysts covering the company. That appears to be significantly lower than the expected 16% annual growth rate for the broader market.

With this information, we can see why S-Enjoy Service Group is trading at a price/earnings ratio that is lower than the market. Apparently, many shareholders were not comfortable holding on while the company may be facing a less prosperous future.

What can we learn from S-Enjoy Service Group’s price-earnings ratio?

The shares of S-Enjoy Service Group may have received a strong boost, but the price-earnings ratio has certainly not reached great heights. It is argued that the price-to-earnings ratio is an inferior measure of value within certain sectors, but that it can be a powerful indicator of business confidence.

We found that S-Enjoy Service Group maintains its low price-to-earnings ratio as forecast growth weakness is, as expected, lower than the broader market. At this point, shareholders accept the low price/earnings because they admit that future earnings are unlikely to bring any pleasant surprises. Unless these conditions improve, they will continue to be a barrier to the stock price around these levels.

Before you take the next step, you should be aware of the 1 warning sign for S-Enjoy Service Group that we have uncovered.

If you unsure about the strength of S-Enjoy Service Group’s activitiesWhy not check out our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Do you have feedback on this article? Worried about the content? Please contact us directly from us. You can also email the editorial team (at) Simplywallst.com.

This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.