Sentiment Still Eluding Jiugui Liquor Co., Ltd. (SZSE:000799)

There wouldn't be many who think Jiugui Liquor Co., Ltd.'s (SZSE:000799) price-to-earnings (or "P/E") ratio of 35x is worth a mention when the median P/E in China is similar at about 32x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, Jiugui Liquor's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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Is There Some Growth For Jiugui Liquor?

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

Retrospectively, the last year delivered a frustrating 51% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 24% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 32% per annum over the next three years. With the market only predicted to deliver 20% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Jiugui Liquor's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Jiugui Liquor's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Jiugui Liquor's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Jiugui Liquor (1 is potentially serious!) that we have uncovered.

If these risks are making you reconsider your opinion on Jiugui Liquor, 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.