XIANGPIAOPIAO Food Co.,Ltd's (SHSE:603711) Share Price Boosted 33% But Its Business Prospects Need A Lift Too

The XIANGPIAOPIAO Food Co.,Ltd (SHSE:603711) share price has done very well over the last month, posting an excellent gain of 33%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may still consider XIANGPIAOPIAO FoodLtd as an attractive investment with its 20.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings that are retreating more than the market's of late, XIANGPIAOPIAO FoodLtd has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for XIANGPIAOPIAO FoodLtd

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

Is There Any Growth For XIANGPIAOPIAO FoodLtd?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.0%. As a result, earnings from three years ago have also fallen 15% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 14% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 18% per annum, which is noticeably more attractive.

In light of this, it's understandable that XIANGPIAOPIAO FoodLtd's 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.

What We Can Learn From XIANGPIAOPIAO FoodLtd's P/E?

XIANGPIAOPIAO FoodLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 XIANGPIAOPIAO FoodLtd 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. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with XIANGPIAOPIAO FoodLtd, and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.