Zhuhai Huafa Properties Co.,Ltd's (SHSE:600325) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Zhuhai Huafa Properties Co.,Ltd (SHSE:600325) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Even after such a large jump in price, Zhuhai Huafa PropertiesLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.9x, since almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 61x 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.

While the market has experienced earnings growth lately, Zhuhai Huafa PropertiesLtd's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

Check out our latest analysis for Zhuhai Huafa PropertiesLtd

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What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Zhuhai Huafa PropertiesLtd's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 47% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 5.5% per annum as estimated by the six analysts watching the company. With the market predicted to deliver 26% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Zhuhai Huafa PropertiesLtd 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.

What We Can Learn From Zhuhai Huafa PropertiesLtd's P/E?

Zhuhai Huafa PropertiesLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

We've established that Zhuhai Huafa PropertiesLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 5 warning signs for Zhuhai Huafa PropertiesLtd you should be aware of.

Of course, you might also be able to find a better stock than Zhuhai Huafa PropertiesLtd. 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.