Market Still Lacking Some Conviction On Xiamen ITG Group Corp.,Ltd (SHSE:600755)

Xiamen ITG Group Corp.,Ltd's (SHSE:600755) price-to-earnings (or "P/E") ratio of 12.4x might 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 27x and even P/E's above 50x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Xiamen ITG GroupLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

View our latest analysis for Xiamen ITG GroupLtd

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Xiamen ITG GroupLtd's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 68% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 60% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 39% per annum over the next three years. With the market only predicted to deliver 23% per annum, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Xiamen ITG GroupLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Xiamen ITG GroupLtd's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Xiamen ITG GroupLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, 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 3 warning signs for Xiamen ITG GroupLtd that you should be aware of.

Of course, you might also be able to find a better stock than Xiamen ITG 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.