There's No Escaping Zhejiang Publishing & Media Co., Ltd.'s (SHSE:601921) Muted Earnings Despite A 31% Share Price Rise

The Zhejiang Publishing & Media Co., Ltd. (SHSE:601921) share price has done very well over the last month, posting an excellent gain of 31%. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 37x, you may still consider Zhejiang Publishing & Media as an attractive investment with its 19.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Zhejiang Publishing & Media has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Zhejiang Publishing & Media

Keen to find out how analysts think Zhejiang Publishing & Media'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?

In order to justify its P/E ratio, Zhejiang Publishing & Media would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 22% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 1.8% during the coming year according to the dual analysts following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Zhejiang Publishing & Media's P/E sits below the majority of other companies. 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

Zhejiang Publishing & Media's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Zhejiang Publishing & Media'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.

Having said that, be aware Zhejiang Publishing & Media is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

If you're unsure about the strength of Zhejiang Publishing & Media'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.