Hunan Investment Group Co.,Ltd. (SZSE:000548) Could Be Riskier Than It Looks

With a price-to-earnings (or "P/E") ratio of 13.8x Hunan Investment Group Co.,Ltd. (SZSE:000548) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 58x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been quite advantageous for Hunan Investment GroupLtd as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Hunan Investment GroupLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hunan Investment GroupLtd's earnings, revenue and cash flow.

How Is Hunan Investment GroupLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Hunan Investment GroupLtd's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 215%. The latest three year period has also seen an excellent 166% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 36% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Hunan Investment GroupLtd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Hunan Investment GroupLtd'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.

We've established that Hunan Investment GroupLtd currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

It is also worth noting that we have found 1 warning sign for Hunan Investment GroupLtd that you need to take into consideration.

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.