The Sunshine Insurance Group Company Limited (HKG:6963) share price has fared very poorly over the last month, falling by a substantial 31%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Sunshine Insurance Group's price-to-earnings (or "P/E") ratio of 7.6x is worth a mention when the median P/E in Hong Kong is similar at about 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

While the market has experienced earnings growth lately, Sunshine Insurance Group's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Sunshine Insurance Group would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. The last three years don't look nice either as the company has shrunk EPS by 40% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 96% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 22% growth forecast for the broader market.

With this information, we find it interesting that Sunshine Insurance Group is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

With its share price falling into a hole, the P/E for Sunshine Insurance Group looks quite average now. 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.

Our examination of Sunshine Insurance Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Sunshine Insurance Group that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.