Even With A 39% Surge, Cautious Investors Are Not Rewarding Anhui Yingjia Distillery Co., Ltd.'s (SHSE:603198) Performance Completely

Anhui Yingjia Distillery Co., Ltd. (SHSE:603198) shares have had a really impressive month, gaining 39% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.9% in the last twelve months.

Although its price has surged higher, Anhui Yingjia Distillery may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.4x, since almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Anhui Yingjia Distillery has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Anhui Yingjia Distillery

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Anhui Yingjia Distillery.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. Pleasingly, EPS has also lifted 116% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 18% per annum over the next three years. With the market predicted to deliver 19% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Anhui Yingjia Distillery's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Despite Anhui Yingjia Distillery's shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Anhui Yingjia Distillery currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Anhui Yingjia Distillery that you should be aware of.

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.