There Is A Reason China Pacific Insurance (Group) Co., Ltd.'s (SHSE:601601) Price Is Undemanding

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider China Pacific Insurance (Group) Co., Ltd. (SHSE:601601) as a highly attractive investment with its 9.7x P/E ratio. 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.

While the market has experienced earnings growth lately, China Pacific Insurance (Group)'s earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for China Pacific Insurance (Group)

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

In order to justify its P/E ratio, China Pacific Insurance (Group) would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 43% 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 9.3% 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 twelve analysts covering the company suggest earnings should grow by 9.9% per year over the next three years. That's shaping up to be materially lower than the 24% per year growth forecast for the broader market.

With this information, we can see why China Pacific Insurance (Group) 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 China Pacific Insurance (Group)'s P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of China Pacific Insurance (Group)'s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware China Pacific Insurance (Group) is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on China Pacific Insurance (Group), 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.