The Market Doesn't Like What It Sees From Guotai Junan Securities Co., Ltd.'s (SHSE:601211) Earnings Yet

With a price-to-earnings (or "P/E") ratio of 13.7x Guotai Junan Securities Co., Ltd. (SHSE:601211) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 53x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Guotai Junan Securities could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

View our latest analysis for Guotai Junan Securities

Keen to find out how analysts think Guotai Junan Securities' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

Guotai Junan Securities' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 19% 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 10% per year during the coming three years according to the eight analysts following the company. With the market predicted to deliver 21% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Guotai Junan Securities 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.

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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Guotai Junan Securities' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Guotai Junan Securities.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.