Stock Analysis

There's No Escaping New China Life Insurance Company Ltd.'s (SHSE:601336) Muted Earnings

SHSE:601336
Source: Shutterstock

With a price-to-earnings (or "P/E") ratio of 8.4x New China Life Insurance Company Ltd. (SHSE:601336) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 39x and even P/E's higher than 76x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been pleasing for New China Life Insurance as its earnings have risen in spite of the market's earnings going into reverse. 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 New China Life Insurance

pe-multiple-vs-industry
SHSE:601336 Price to Earnings Ratio vs Industry March 14th 2025
Keen to find out how analysts think New China Life Insurance's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like New China Life Insurance's to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Although pleasingly EPS has lifted 31% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 2.7% during the coming year according to the nine analysts following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

With this information, we can see why New China Life Insurance is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

We've established that New China Life Insurance maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for New China Life Insurance (1 can't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on New China Life Insurance, explore our interactive list of high quality stocks to get an idea of what else is out there.

If you're looking to trade New China Life Insurance, open an account with the lowest-cost platform trusted by professionals, Interactive Brokers.

With clients in over 200 countries and territories, and access to 160 markets, IBKR lets you trade stocks, options, futures, forex, bonds and funds from a single integrated account.

Enjoy no hidden fees, no account minimums, and FX conversion rates as low as 0.03%, far better than what most brokers offer.

Sponsored Content

Valuation is complex, but we're here to simplify it.

Discover if New China Life Insurance might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

Access Free Analysis

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.