Shanghai Yuyuan Tourist Mart (Group) Co., Ltd.'s (SHSE:600655) Share Price Is Matching Sentiment Around Its Earnings

Shanghai Yuyuan Tourist Mart (Group) Co., Ltd.'s (SHSE:600655) price-to-earnings (or "P/E") ratio of 12.2x might 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 32x and even P/E's above 60x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Shanghai Yuyuan Tourist Mart (Group) could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. 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 Shanghai Yuyuan Tourist Mart (Group)

Keen to find out how analysts think Shanghai Yuyuan Tourist Mart (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Shanghai Yuyuan Tourist Mart (Group)?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Shanghai Yuyuan Tourist Mart (Group)'s to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 49%. The last three years don't look nice either as the company has shrunk EPS by 51% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 20% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 26% each year, which is noticeably more attractive.

With this information, we can see why Shanghai Yuyuan Tourist Mart (Group) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Shanghai Yuyuan Tourist Mart (Group)'s P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Shanghai Yuyuan Tourist Mart (Group) 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.

Plus, you should also learn about these 3 warning signs we've spotted with Shanghai Yuyuan Tourist Mart (Group) (including 1 which can't be ignored).

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.