When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider Xinhua Winshare Publishing and Media Co., Ltd. (HKG:811) as a highly attractive investment with its 4.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Earnings have risen at a steady rate over the last year for Xinhua Winshare Publishing and Media, which is generally not a bad outcome. It might be that many expect the respectable earnings performance to degrade, 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.

View our latest analysis for Xinhua Winshare Publishing and Media

How Is Xinhua Winshare Publishing and Media's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Xinhua Winshare Publishing and Media's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.3% last year. This was backed up an excellent period prior to see EPS up by 34% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Xinhua Winshare Publishing and Media's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Xinhua Winshare Publishing and Media's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Xinhua Winshare Publishing and Media revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Xinhua Winshare Publishing and Media that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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.