Shaanxi International Trust Co.,Ltd. (SZSE:000563) Surges 34% Yet Its Low P/E Is No Reason For Excitement

Shaanxi International Trust Co.,Ltd. (SZSE:000563) shareholders have had their patience rewarded with a 34% share price jump in the last month. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Shaanxi International TrustLtd as an attractive investment with its 16.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen at a steady rate over the last year for Shaanxi International TrustLtd, which is generally not a bad outcome. It might be that many expect the respectable earnings performance to degrade, 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.

View our latest analysis for Shaanxi International TrustLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shaanxi International TrustLtd's earnings, revenue and cash flow.

Is There Any Growth For Shaanxi International TrustLtd?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shaanxi International TrustLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.8% last year. The solid recent performance means it was also able to grow EPS by 26% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 36% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Shaanxi International TrustLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

The latest share price surge wasn't enough to lift Shaanxi International TrustLtd's P/E close to the market median. 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.

We've established that Shaanxi International TrustLtd maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Shaanxi International TrustLtd with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.