There's No Escaping China Merchants Property Operation & Service Co., Ltd.'s (SZSE:001914) Muted Earnings Despite A 28% Share Price Rise

China Merchants Property Operation & Service Co., Ltd. (SZSE:001914) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 19% over that time.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may still consider China Merchants Property Operation & Service as an attractive investment with its 17.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

China Merchants Property Operation & Service certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 China Merchants Property Operation & Service

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Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like China Merchants Property Operation & Service's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. Pleasingly, EPS has also lifted 51% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% per annum as estimated by the eleven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 26% per year, which is noticeably more attractive.

In light of this, it's understandable that China Merchants Property Operation & Service'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.

What We Can Learn From China Merchants Property Operation & Service's P/E?

China Merchants Property Operation & Service'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 China Merchants Property Operation & Service's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for China Merchants Property Operation & Service that you need to be mindful of.

If these risks are making you reconsider your opinion on China Merchants Property Operation & Service, 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.