Some Shareholders Feeling Restless Over JINHUI LIQUOR Co.,Ltd.'s (SHSE:603919) P/E Ratio

With a median price-to-earnings (or "P/E") ratio of close to 29x in China, you could be forgiven for feeling indifferent about JINHUI LIQUOR Co.,Ltd.'s (SHSE:603919) P/E ratio of 27.3x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, JINHUI LIQUORLtd has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

Check out our latest analysis for JINHUI LIQUORLtd

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

How Is JINHUI LIQUORLtd's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like JINHUI LIQUORLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 24%. However, this wasn't enough as the latest three year period has seen a very unpleasant 6.0% drop in EPS in aggregate. 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 three years should generate growth of 18% per annum as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 25% per year growth forecast for the broader market.

With this information, we find it interesting that JINHUI LIQUORLtd is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of JINHUI LIQUORLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

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

You might be able to find a better investment than JINHUI LIQUORLtd. 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).

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.