Guilin Seamild Foods Co., Ltd (SZSE:002956) Surges 29% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Guilin Seamild Foods Co., Ltd (SZSE:002956) shares have been powering on, with a gain of 29% in the last thirty days. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Guilin Seamild Foods' price-to-earnings (or "P/E") ratio of 29.7x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 38x and even P/E's above 75x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Guilin Seamild Foods 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Guilin Seamild Foods

Want the full picture on analyst estimates for the company? Then our free report on Guilin Seamild Foods will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 15%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 21% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

With this information, we can see why Guilin Seamild Foods 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 Final Word

Despite Guilin Seamild Foods' shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Guilin Seamild Foods' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Guilin Seamild Foods you should be aware of, and 1 of them doesn't sit too well with us.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.