Beijing-Shanghai High-Speed Railway Co., Ltd.'s (SHSE:601816) Shares Lagging The Market But So Is The Business

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 39x, you may consider Beijing-Shanghai High-Speed Railway Co., Ltd. (SHSE:601816) as an attractive investment with its 21.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Beijing-Shanghai High-Speed Railway has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Beijing-Shanghai High-Speed Railway

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How Is Beijing-Shanghai High-Speed Railway's Growth Trending?

Beijing-Shanghai High-Speed Railway'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 growth, the company posted a terrific increase of 55%. Pleasingly, EPS has also lifted 121% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 7.8% during the coming year according to the twelve analysts following the company. That's shaping up to be materially lower than the 37% growth forecast for the broader market.

In light of this, it's understandable that Beijing-Shanghai High-Speed Railway's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Beijing-Shanghai High-Speed Railway's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about this 1 warning sign we've spotted with Beijing-Shanghai High-Speed Railway.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.