There Is A Reason Chow Tai Seng Jewellery Co., Ltd.'s (SZSE:002867) Price Is Undemanding

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Chow Tai Seng Jewellery Co., Ltd. (SZSE:002867) as a highly attractive investment with its 10.2x 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 so limited.

With earnings that are retreating more than the market's of late, Chow Tai Seng Jewellery has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Chow Tai Seng Jewellery

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chow Tai Seng Jewellery.

How Is Chow Tai Seng Jewellery's Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.2%. The last three years don't look nice either as the company has shrunk EPS by 9.1% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 12% per annum over the next three years. With the market predicted to deliver 19% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Chow Tai Seng Jewellery 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 Chow Tai Seng Jewellery's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Chow Tai Seng Jewellery'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.

Plus, you should also learn about this 1 warning sign we've spotted with Chow Tai Seng Jewellery.

If you're unsure about the strength of Chow Tai Seng Jewellery's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.