The Market Lifts Hangzhou Binjiang Real Estate Group Co.,Ltd (SZSE:002244) Shares 35% But It Can Do More

Hangzhou Binjiang Real Estate Group Co.,Ltd (SZSE:002244) shares have continued their recent momentum with a 35% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 8.0% isn't as attractive.

Even after such a large jump in price, Hangzhou Binjiang Real Estate GroupLtd's price-to-earnings (or "P/E") ratio of 15.7x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 29x and even P/E's above 54x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Hangzhou Binjiang Real Estate GroupLtd has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Hangzhou Binjiang Real Estate GroupLtd

Keen to find out how analysts think Hangzhou Binjiang Real Estate GroupLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Hangzhou Binjiang Real Estate GroupLtd's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Hangzhou Binjiang Real Estate GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 51% 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 25% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 18% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 19% per annum, which is not materially different.

With this information, we find it odd that Hangzhou Binjiang Real Estate GroupLtd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Hangzhou Binjiang Real Estate GroupLtd's P/E close to the market median. 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.

Our examination of Hangzhou Binjiang Real Estate GroupLtd'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. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 4 warning signs we've spotted with Hangzhou Binjiang Real Estate GroupLtd (including 1 which can't be ignored).

Of course, you might also be able to find a better stock than Hangzhou Binjiang Real Estate GroupLtd. 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.