Further Upside For Chongqing Port Co.,Ltd. (SHSE:600279) Shares Could Introduce Price Risks After 34% Bounce

Simply Wall St · 10/17 22:13

The Chongqing Port Co.,Ltd. (SHSE:600279) share price has done very well over the last month, posting an excellent gain of 34%. Taking a wider view, although not as strong as the last month, the full year gain of 13% is also fairly reasonable.

Although its price has surged higher, Chongqing PortLtd's price-to-earnings (or "P/E") ratio of 8.9x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 32x and even P/E's above 62x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's exceedingly strong of late, Chongqing PortLtd has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for Chongqing PortLtd

pe-multiple-vs-industry
SHSE:600279 Price to Earnings Ratio vs Industry October 17th 2024
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Chongqing PortLtd's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Chongqing PortLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 241%. The latest three year period has also seen an excellent 984% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 37% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Chongqing PortLtd is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Even after such a strong price move, Chongqing PortLtd's P/E still trails the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Chongqing PortLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Chongqing PortLtd that you should be aware of.

Of course, you might also be able to find a better stock than Chongqing PortLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.