Improved Earnings Required Before Jiangsu Lianyungang Port Co., Ltd. (SHSE:601008) Shares Find Their Feet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Jiangsu Lianyungang Port Co., Ltd. (SHSE:601008) as an attractive investment with its 25.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Jiangsu Lianyungang Port over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Jiangsu Lianyungang Port

Although there are no analyst estimates available for Jiangsu Lianyungang Port, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Jiangsu Lianyungang Port's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jiangsu Lianyungang Port's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 6.6% decrease to the company's bottom line. Even so, admirably EPS has lifted 102% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 36% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Jiangsu Lianyungang Port's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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 Jiangsu Lianyungang Port revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, 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 1 warning sign for Jiangsu Lianyungang Port that we have uncovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.