When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Guangzhou Yuexiu Capital Holdings Group Co., Ltd. (SZSE:000987) as a highly attractive investment with its 12.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
While the market has experienced earnings growth lately, Guangzhou Yuexiu Capital Holdings Group's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.
Is There Any Growth For Guangzhou Yuexiu Capital Holdings Group?
Guangzhou Yuexiu Capital Holdings Group's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered a frustrating 18% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 30% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Turning to the outlook, the next three years should generate growth of 5.8% per year as estimated by the only analyst watching the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.
With this information, we can see why Guangzhou Yuexiu Capital Holdings Group is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Guangzhou Yuexiu Capital Holdings Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Plus, you should also learn about these 2 warning signs we've spotted with Guangzhou Yuexiu Capital Holdings Group (including 1 which is a bit concerning).
If you're unsure about the strength of Guangzhou Yuexiu Capital Holdings Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com