Qingdao Citymedia Co,. Ltd.'s (SHSE:600229) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 13.1x Qingdao Citymedia Co,. Ltd. (SHSE:600229) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

It looks like earnings growth has deserted Qingdao Citymedia Co recently, which is not something to boast about. One possibility is that the P/E is low because investors think this benign earnings growth rate will likely underperform the broader market in the near future. If you 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 Qingdao Citymedia Co

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Qingdao Citymedia Co's earnings, revenue and cash flow.

How Is Qingdao Citymedia Co's Growth Trending?

In order to justify its P/E ratio, Qingdao Citymedia Co would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Although pleasingly EPS has lifted 71% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 36% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Qingdao Citymedia Co's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Qingdao Citymedia Co'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.

We've established that Qingdao Citymedia Co maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Qingdao Citymedia Co that we have uncovered.

Of course, you might also be able to find a better stock than Qingdao Citymedia Co. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.