China Merchants Port Group Co., Ltd.'s (SZSE:001872) Earnings Are Not Doing Enough For Some Investors

China Merchants Port Group Co., Ltd.'s (SZSE:001872) price-to-earnings (or "P/E") ratio of 12.3x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 37x and even P/E's above 73x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

China Merchants Port Group has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for China Merchants Port Group

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How Is China Merchants Port Group's Growth Trending?

In order to justify its P/E ratio, China Merchants Port Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 7.9% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 1.3% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 2.9% during the coming year according to the lone analyst following the company. That's not great when the rest of the market is expected to grow by 38%.

With this information, we are not surprised that China Merchants Port Group is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From China Merchants Port Group's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that China Merchants Port Group maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for China Merchants Port Group that you should be aware of.

If you're unsure about the strength of China Merchants Port 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.