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Wall Street JournalJiangxi Guotai Group Co.,Ltd. (SHSE:603977) Stock Rockets 37% But Many Are Still Ignoring The Company
Jiangxi Guotai Group Co.,Ltd. (SHSE:603977) shares have had a really impressive month, gaining 37% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 51%.
Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Jiangxi Guotai GroupLtd as an attractive investment with its 25x 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.
Jiangxi Guotai GroupLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for Jiangxi Guotai GroupLtd
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Jiangxi Guotai GroupLtd's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered an exceptional 90% gain to the company's bottom line. The latest three year period has also seen an excellent 40% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 18% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% per annum, which is not materially different.
In light of this, it's peculiar that Jiangxi Guotai GroupLtd'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.
The Final Word
The latest share price surge wasn't enough to lift Jiangxi Guotai GroupLtd's P/E close to the market median. 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.
Our examination of Jiangxi Guotai GroupLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
You should always think about risks. Case in point, we've spotted 1 warning sign for Jiangxi Guotai GroupLtd you should be aware of.
Of course, you might also be able to find a better stock than Jiangxi Guotai GroupLtd. 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.