Shanghai Zijiang Enterprise Group Co., Ltd.'s (SHSE:600210) Share Price Boosted 32% But Its Business Prospects Need A Lift Too

Shanghai Zijiang Enterprise Group Co., Ltd. (SHSE:600210) shares have continued their recent momentum with a 32% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

In spite of the firm bounce in price, Shanghai Zijiang Enterprise Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.7x, since almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 58x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Shanghai Zijiang Enterprise Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Shanghai Zijiang Enterprise Group's Growth Trending?

In order to justify its P/E ratio, Shanghai Zijiang Enterprise Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 7.3% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 1.1% in total over the last three years. 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 year should generate growth of 14% as estimated by the only analyst watching the company. With the market predicted to deliver 36% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Shanghai Zijiang Enterprise Group 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 Bottom Line On Shanghai Zijiang Enterprise Group's P/E

The latest share price surge wasn't enough to lift Shanghai Zijiang Enterprise Group's P/E close to the market median. 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 Shanghai Zijiang Enterprise Group 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shanghai Zijiang Enterprise Group you should know about.

If you're unsure about the strength of Shanghai Zijiang Enterprise Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.