Earnings Working Against Beijing-Shanghai High-Speed Railway Co., Ltd.'s (SHSE:601816) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider Beijing-Shanghai High-Speed Railway Co., Ltd. (SHSE:601816) as an attractive investment with its 20.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Beijing-Shanghai High-Speed Railway as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Beijing-Shanghai High-Speed Railway

Want the full picture on analyst estimates for the company? Then our free report on Beijing-Shanghai High-Speed Railway will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

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 129%. The latest three year period has also seen an excellent 134% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 9.3% per annum over the next three years. With the market predicted to deliver 19% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Beijing-Shanghai High-Speed Railway'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.

What We Can Learn From Beijing-Shanghai High-Speed Railway's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Beijing-Shanghai High-Speed Railway you should be aware of.

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.