Dongxing Securities Corporation Limited's (SHSE:601198) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 28.4x Dongxing Securities Corporation Limited (SHSE:601198) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 71x are not unusual. 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, Dongxing Securities 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.

Check out our latest analysis for Dongxing Securities

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

Is There Any Growth For Dongxing Securities?

The only time you'd be truly comfortable seeing a P/E as low as Dongxing Securities' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 195% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 24% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 46% during the coming year according to the sole analyst following the company. That's not great when the rest of the market is expected to grow by 37%.

In light of this, it's understandable that Dongxing Securities' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Dongxing Securities' analyst forecasts revealed that its outlook for shrinking earnings 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Dongxing Securities (2 are significant) you should be aware of.

If these risks are making you reconsider your opinion on Dongxing Securities, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.