Insufficient Growth At JINHUI LIQUOR Co., Ltd. (SHSE:603919) Hampers Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider JINHUI LIQUOR Co., Ltd. (SHSE:603919) as an attractive investment with its 24.2x 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 its earnings growth in positive territory compared to the declining earnings of most other companies, JINHUI LIQUOR 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 JINHUI LIQUOR

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 15%. However, this wasn't enough as the latest three year period has seen an unpleasant 4.7% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 18% as estimated by the nine analysts watching the company. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

With this information, we can see why JINHUI LIQUOR 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 JINHUI LIQUOR's 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.

As we suspected, our examination of JINHUI LIQUOR's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for JINHUI LIQUOR with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than JINHUI LIQUOR. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.