Stock Analysis

Market Still Lacking Some Conviction On Shenwan Hongyuan Group Co., Ltd. (SZSE:000166)

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Shenwan Hongyuan Group Co., Ltd.'s (SZSE:000166) price-to-earnings (or "P/E") ratio of 29.2x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 33x and even P/E's above 62x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Shenwan Hongyuan Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Shenwan Hongyuan Group

SZSE:000166 Price to Earnings Ratio vs Industry May 22nd 2024
Want the full picture on analyst estimates for the company? Then our free report on Shenwan Hongyuan Group will help you uncover what's on the horizon.

How Is Shenwan Hongyuan Group's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 7.2%. However, this wasn't enough as the latest three year period has seen an unpleasant 52% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 28% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 26% per annum, which is noticeably less attractive.

With this information, we find it odd that Shenwan Hongyuan Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Shenwan Hongyuan Group's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Shenwan Hongyuan Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Shenwan Hongyuan Group has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Shenwan Hongyuan Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Shenwan Hongyuan Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.