ShenZhen Properties & Resources Development (Group) Ltd. (SZSE:000011) Stock Catapults 33% Though Its Price And Business Still Lag The Market

The ShenZhen Properties & Resources Development (Group) Ltd. (SZSE:000011) share price has done very well over the last month, posting an excellent gain of 33%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, ShenZhen Properties & Resources Development (Group) may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 23.2x, since almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 65x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at ShenZhen Properties & Resources Development (Group) over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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.

See our latest analysis for ShenZhen Properties & Resources Development (Group)

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 ShenZhen Properties & Resources Development (Group)'s earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as ShenZhen Properties & Resources Development (Group)'s is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 50%. This means it has also seen a slide in earnings over the longer-term as EPS is down 80% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's an unpleasant look.

With this information, we are not surprised that ShenZhen Properties & Resources Development (Group) is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Despite ShenZhen Properties & Resources Development (Group)'s shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that ShenZhen Properties & Resources Development (Group) maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for ShenZhen Properties & Resources Development (Group) (2 are concerning!) that we have uncovered.

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.