Goldcard Smart Group Co., Ltd. (SZSE:300349) Held Back By Insufficient Growth Even After Shares Climb 33%

Goldcard Smart Group Co., Ltd. (SZSE:300349) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Goldcard Smart Group as a highly attractive investment with its 12.5x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Goldcard Smart Group as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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How Is Goldcard Smart Group's Growth Trending?

Goldcard Smart Group's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. As a result, it also grew EPS by 15% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 19% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Goldcard Smart Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Goldcard Smart Group's recent share price jump still sees its P/E sitting firmly flat on the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Goldcard Smart 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.

It is also worth noting that we have found 1 warning sign for Goldcard Smart Group that you need to take into consideration.

If you're unsure about the strength of Goldcard Smart 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.