Investors Aren't Buying GF Securities Co., Ltd.'s (SZSE:000776) Earnings

GF Securities Co., Ltd.'s (SZSE:000776) price-to-earnings (or "P/E") ratio of 16.1x 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 28x and even P/E's above 53x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, GF Securities' earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. 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.

Check out our latest analysis for GF Securities

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

How Is GF Securities' Growth Trending?

In order to justify its P/E ratio, GF Securities would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 35% 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 46% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 14% per year during the coming three years according to the eleven analysts following the company. With the market predicted to deliver 24% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that GF Securities' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On GF Securities' P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that GF Securities maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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 these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for GF Securities that we have uncovered.

You might be able to find a better investment than GF 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.