There's No Escaping Jinan Shengquan Group Share Holding Co., Ltd.'s (SHSE:605589) Muted Earnings Despite A 26% Share Price Rise

Despite an already strong run, Jinan Shengquan Group Share Holding Co., Ltd. (SHSE:605589) shares have been powering on, with a gain of 26% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 9.9% isn't as impressive.

In spite of the firm bounce in price, Jinan Shengquan Group Share Holding's price-to-earnings (or "P/E") ratio of 23.4x 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 37x and even P/E's above 73x 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.

Jinan Shengquan Group Share Holding certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 Jinan Shengquan Group Share Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jinan Shengquan Group Share Holding.

Is There Any Growth For Jinan Shengquan Group Share Holding?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jinan Shengquan Group Share Holding's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 1.0% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 26% over the next year. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

With this information, we can see why Jinan Shengquan Group Share Holding 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 Jinan Shengquan Group Share Holding's P/E

Despite Jinan Shengquan Group Share Holding's shares building up a head of steam, its P/E still lags most other companies. 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 Jinan Shengquan Group Share Holding's 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.

Plus, you should also learn about these 2 warning signs we've spotted with Jinan Shengquan Group Share Holding.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.