Even With A 27% Surge, Cautious Investors Are Not Rewarding Three's Company Media Group Co., Ltd.'s (SHSE:605168) Performance Completely

Those holding Three's Company Media Group Co., Ltd. (SHSE:605168) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Even after such a large jump in price, Three's Company Media Group's price-to-earnings (or "P/E") ratio of 12.5x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x 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 so limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Three's Company Media Group has been doing quite well of late. 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.

View our latest analysis for Three's Company Media Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Three's Company Media Group.

Is There Any Growth For Three's Company Media Group?

In order to justify its P/E ratio, Three's Company Media Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 42% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 110% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 39% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 41%, which is not materially different.

In light of this, it's peculiar that Three's Company Media Group's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Three's Company Media Group's P/E

Three's Company Media Group's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

Our examination of Three's Company Media Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Three's Company Media Group (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Three's Company Media Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.