Millennium & Copthorne Hotels New Zealand Limited (NZSE:MCK) may be sending very bullish signals at the moment, given that almost half of all companies in New Zealand have P/E ratios greater than 23x and even P/E’s higher than 40x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it’s justified.” data-reactid=”28″>With a price-to-earnings (or “P/E”) ratio of 4.7x Millennium & Copthorne Hotels New Zealand Limited (NZSE:MCK) may be sending very bullish signals at the moment, given that almost half of all companies in New Zealand have P/E ratios greater than 23x and even P/E’s higher than 40x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it’s justified.
Millennium & Copthorne Hotels New Zealand certainly has been doing a great job lately as it’s been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn’t eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Millennium & Copthorne Hotels New Zealand ” data-reactid=”30″> See our latest analysis for Millennium & Copthorne Hotels New Zealand
free report on Millennium & Copthorne Hotels New Zealand’s earnings, revenue and cash flow.” data-reactid=”47″>We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Millennium & Copthorne Hotels New Zealand’s earnings, revenue and cash flow.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Millennium & Copthorne Hotels New Zealand would need to produce anemic growth that’s substantially trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 39{143106009d8b87d45252e1fd973f0c0835ad3aabba3679e828c3cd83539ae06c}. Pleasingly, EPS has also lifted 47{143106009d8b87d45252e1fd973f0c0835ad3aabba3679e828c3cd83539ae06c} in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Weighing the recent medium-term upward earnings trajectory against the broader market’s one-year forecast for contraction of 0.6{143106009d8b87d45252e1fd973f0c0835ad3aabba3679e828c3cd83539ae06c} shows it’s a great look while it lasts.
With this information, we find it very odd that Millennium & Copthorne Hotels New Zealand is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader market.
The Key Takeaway
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.
Our examination of Millennium & Copthorne Hotels New Zealand revealed its growing earnings over the medium-term aren’t contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. Perhaps there is some hesitation about the company’s ability to stay its recent course and swim against the current of the broader market turmoil. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.
free balance sheet analysis for Millennium & Copthorne Hotels New Zealand with six simple checks on some of these key factors.” data-reactid=”56″>The company’s balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Millennium & Copthorne Hotels New Zealand with six simple checks on some of these key factors.
our interactive list of high quality stocks to get an idea of what else is out there.” data-reactid=”57″>If these risks are making you reconsider your opinion on Millennium & Copthorne Hotels New Zealand, explore our interactive list of high quality stocks to get an idea of what else is out there.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”62″>This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected].