Shanghai Foreign Service Holding Group Co., Ltd.'s (SHSE:600662) Share Price Boosted 27% But Its Business Prospects Need A Lift Too

Shanghai Foreign Service Holding Group Co., Ltd. (SHSE:600662) shareholders have had their patience rewarded with a 27% share price jump in the last month. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.5% over the last year.

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 30x, you may still consider Shanghai Foreign Service Holding Group as an attractive investment with its 19.1x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shanghai Foreign Service Holding Group has been doing quite well of late. 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.

View our latest analysis for Shanghai Foreign Service Holding Group

Want the full picture on analyst estimates for the company? Then our free report on Shanghai Foreign Service Holding Group will help you uncover what's on the horizon.

Is There Any Growth For Shanghai Foreign Service Holding Group?

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

Retrospectively, the last year delivered a decent 7.0% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 45% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 8.1% per year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is noticeably more attractive.

With this information, we can see why Shanghai Foreign Service Holding Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Shanghai Foreign Service Holding Group's P/E

Despite Shanghai Foreign Service Holding Group's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Shanghai Foreign Service Holding 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Shanghai Foreign Service Holding Group.

You might be able to find a better investment than Shanghai Foreign Service Holding Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.