Roiserv Lifestyle Services Co., Ltd. (HKG:2146)’s business and stock price continue to lag the market

Roiserv Lifestyle Services Co., Ltd. (HKG:2146)’s price-to-earnings ratio (or “P/E”) of 4.7x may make it look like a strong buy at the moment when compared to the Hong Kong market. Approximately half of the companies have a P/E ratio of over 10 times, and it is not uncommon for companies to have a P/E ratio of over 20 times. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the significantly lower P/E ratio.

For example, the recent decline in Royserve Lifestyle Services’ earnings should be a factor to consider. Perhaps many expect the disappointing performance to continue or accelerate, which may be pushing down the P/E ratio. However, if that doesn’t happen, existing shareholders could become optimistic about the future direction of the stock price.

Check out our latest analysis for Roiserv Lifestyle Services.

Want a complete picture of the company’s earnings, revenue and cash flow? Our free report on Roiserv Lifestyle Services will help shed light on its historical performance.

What are the growth trends of Roiserv Lifestyle Services?

To justify the P/E ratio, Royserv Lifestyle Services would need to generate poor growth that is significantly below the market.

Looking back at last year’s earnings, we unfortunately saw the company’s profit drop by 23%. Things haven’t been much better over the past three years either, as the company has shrunk its EPS by a total of 75%. Therefore, shareholders would have been disappointed with the medium-term profit growth rate.

When you weigh this medium-term earnings trajectory against the 22% one-year expansion forecast for the overall market, it becomes an unpleasant prospect.

Given this information, it’s no surprise that Royserv Lifestyle Services is trading at a lower P/E than the market. However, we think the earnings contraction is unlikely to translate into a stable P/E over the long term, and shareholders could be disappointed in the future. Just maintaining this price could be difficult, as recent earnings trends are already weighing on the stock.

What can we learn from Roiserv Lifestyle Services’ P/E ratio?

While it’s not wise to use the price-to-earnings ratio alone to decide whether to sell a stock, it can be a practical guide to a company’s future prospects.

As expected, we find that Royserv Lifestyle Services maintains a low P/E ratio as its earnings have slowed over the medium term. At this stage, investors feel that the potential for improved earnings is not large enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it’s hard to imagine the stock price moving significantly in either direction in the near future under these circumstances.

With that said, you should be aware that Roiserv Lifestyle Services is showing 3 warning signs in our investment analysis , and 1 of them is a bit unpleasant.

Of course, by considering several good candidates, you may find a great investment. So take a peek at this free list of companies with a strong track record of growth, trading on a low P/E ratio.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This 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 long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.