Investors Don't See Light At End Of China National Gold Group Gold Jewellery Co.,Ltd.'s (SHSE:600916) Tunnel

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider China National Gold Group Gold Jewellery Co.,Ltd. (SHSE:600916) as an attractive investment with its 20.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

China National Gold Group Gold JewelleryLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 China National Gold Group Gold JewelleryLtd

Want the full picture on analyst estimates for the company? Then our free report on China National Gold Group Gold JewelleryLtd will help you uncover what's on the horizon.

Is There Any Growth For China National Gold Group Gold JewelleryLtd?

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

If we review the last year of earnings growth, the company posted a worthy increase of 4.1%. Pleasingly, EPS has also lifted 47% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 31% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 39%, which is noticeably more attractive.

With this information, we can see why China National Gold Group Gold JewelleryLtd 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 Final Word

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 China National Gold Group Gold JewelleryLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for China National Gold Group Gold JewelleryLtd (1 is a bit concerning!) that you need to take into consideration.

You might be able to find a better investment than China National Gold Group Gold JewelleryLtd. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.