Guotai Junan Securities Co., Ltd.'s (SHSE:601211) Earnings Are Not Doing Enough For Some Investors

Guotai Junan Securities Co., Ltd.'s (SHSE:601211) price-to-earnings (or "P/E") ratio of 17.9x 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 37x and even P/E's above 73x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Guotai Junan Securities has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. 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 Guotai Junan Securities

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

How Is Guotai Junan Securities' Growth Trending?

In order to justify its P/E ratio, Guotai Junan Securities would need to produce anemic growth that's substantially trailing the market.

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 14%. As a result, earnings from three years ago have also fallen 30% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 26% as estimated by the nine analysts watching the company. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

In light of this, it's understandable that Guotai Junan Securities' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Guotai Junan Securities' P/E?

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 Guotai Junan Securities' 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Guotai Junan Securities that you should be aware of.

You might be able to find a better investment than Guotai Junan Securities. 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.