Northern United Publishing & Media (Group) Company Limited's (SHSE:601999) 29% Price Boost Is Out Of Tune With Earnings

Simply Wall St ·  Mar 22 22:05

Northern United Publishing & Media (Group) Company Limited (SHSE:601999) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, given around half the companies in China have price-to-earnings ratios (or "P/E's") below 31x, you may consider Northern United Publishing & Media (Group) as a stock to potentially avoid with its 39.1x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Northern United Publishing & Media (Group) as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

SHSE:601999 Price to Earnings Ratio vs Industry March 23rd 2024
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Northern United Publishing & Media (Group) will help you shine a light on its historical performance.

Is There Enough Growth For Northern United Publishing & Media (Group)?

In order to justify its P/E ratio, Northern United Publishing & Media (Group) would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 117%. However, this wasn't enough as the latest three year period has seen a very unpleasant 40% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 39% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Northern United Publishing & Media (Group) is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Northern United Publishing & Media (Group)'s P/E is getting right up there since its shares have risen strongly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Northern United Publishing & Media (Group) currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Northern United Publishing & Media (Group) (1 shouldn't be ignored) you should be aware of.

Of course, you might also be able to find a better stock than Northern United Publishing & Media (Group). So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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