There's No Escaping Thinkingdom Media Group Ltd.'s (SHSE:603096) Muted Earnings Despite A 28% Share Price Rise

Despite an already strong run, Thinkingdom Media Group Ltd. (SHSE:603096) shares have been powering on, with a gain of 28% in the last thirty days. Looking further back, the 12% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Thinkingdom Media Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.8x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x 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.

Recent times have been pleasing for Thinkingdom Media Group as its earnings have risen in spite of the market's earnings going into reverse. 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 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.

See our latest analysis for Thinkingdom Media Group

Keen to find out how analysts think Thinkingdom Media Group'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?

Thinkingdom Media Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Still, lamentably EPS has fallen 6.9% in aggregate from three years ago, which is disappointing. 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 17% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 39%, which is noticeably more attractive.

In light of this, it's understandable that Thinkingdom Media Group'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 Bottom Line On Thinkingdom Media Group's P/E

Despite Thinkingdom Media Group'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 Thinkingdom Media Group'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.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.