When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider China Tourism Group Duty Free Corporation Limited (SHSE:601888) as an attractive investment with its 26.4x 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 limited.
With its earnings growth in positive territory compared to the declining earnings of most other companies, China Tourism Group Duty Free has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for China Tourism Group Duty Free
How Is China Tourism Group Duty Free's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as China Tourism Group Duty Free's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 23% per annum during the coming three years according to the analysts following the company. That's shaping up to be similar to the 22% per annum growth forecast for the broader market.
In light of this, it's peculiar that China Tourism Group Duty Free's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
What We Can Learn From China Tourism Group Duty Free's P/E?
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of China Tourism Group Duty Free's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like 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.
And what about other risks? Every company has them, and we've spotted 1 warning sign for China Tourism Group Duty Free you should know about.
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 low P/E).
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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.