Improved Earnings Required Before Easyhome New Retail Group Corporation Limited (SZSE:000785) Stock's 35% Jump Looks Justified

Easyhome New Retail Group Corporation Limited (SZSE:000785) shares have continued their recent momentum with a 35% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 50%.

Although its price has surged higher, Easyhome New Retail Group's price-to-earnings (or "P/E") ratio of 32.5x 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 37x and even P/E's above 72x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Easyhome New Retail Group has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Easyhome New Retail Group

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Is There Any Growth For Easyhome New Retail Group?

Easyhome New Retail Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 26%. As a result, earnings from three years ago have also fallen 57% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 23% as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 37% growth forecast for the broader market.

With this information, we can see why Easyhome New Retail Group 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 Easyhome New Retail Group's P/E?

Despite Easyhome New Retail 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.

As we suspected, our examination of Easyhome New Retail Group'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.

Before you take the next step, you should know about the 4 warning signs for Easyhome New Retail Group (1 is potentially serious!) that we have uncovered.

If you're unsure about the strength of Easyhome New Retail Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.