Anhui Kouzi Distillery Co., Ltd.'s (SHSE:603589) Shares Bounce 32% But Its Business Still Trails The Market

Anhui Kouzi Distillery Co., Ltd. (SHSE:603589) shares have had a really impressive month, gaining 32% 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 7.3% in the last twelve months.

In spite of the firm bounce in price, Anhui Kouzi Distillery may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.8x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 58x 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 Kouzi Distillery has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 Anhui Kouzi Distillery

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

How Is Anhui Kouzi Distillery's Growth Trending?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 10% last year. The latest three year period has also seen a 23% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 10% each year over the next three years. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Anhui Kouzi Distillery 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.

The Bottom Line On Anhui Kouzi Distillery's P/E

The latest share price surge wasn't enough to lift Anhui Kouzi Distillery's P/E close to the market median. 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.

We've established that Anhui Kouzi Distillery maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Anhui Kouzi Distillery that you should be aware of.

If these risks are making you reconsider your opinion on Anhui Kouzi Distillery, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.