Little Excitement Around Camel Group Co., Ltd.'s (SHSE:601311) Earnings

Camel Group Co., Ltd.'s (SHSE:601311) price-to-earnings (or "P/E") ratio of 15x 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 39x and even P/E's above 75x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Camel Group 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. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 Camel Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Camel Group.

Is There Any Growth For Camel Group?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Camel Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 34% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 26% during the coming year according to the five analysts following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Camel 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 Bottom Line On Camel Group'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.

As we suspected, our examination of Camel Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Before you take the next step, you should know about the 1 warning sign for Camel Group that we have uncovered.

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