Sichuan Guangan Aaa Public Co.,Ltd's (SHSE:600979) Share Price Boosted 113% But Its Business Prospects Need A Lift Too

Despite an already strong run, Sichuan Guangan Aaa Public Co.,Ltd (SHSE:600979) shares have been powering on, with a gain of 113% in the last thirty days. The annual gain comes to 111% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Sichuan Guangan Aaa PublicLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 30.7x, since almost half of all companies in China have P/E ratios greater than 38x and even P/E's higher than 75x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Sichuan Guangan Aaa PublicLtd has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 Sichuan Guangan Aaa PublicLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sichuan Guangan Aaa PublicLtd will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Sichuan Guangan Aaa PublicLtd would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 75% last year. Pleasingly, EPS has also lifted 52% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Sichuan Guangan Aaa PublicLtd is trading at a P/E lower than the market. 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.

What We Can Learn From Sichuan Guangan Aaa PublicLtd's P/E?

Despite Sichuan Guangan Aaa PublicLtd's shares building up a head of steam, its P/E still lags most other companies. 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 Sichuan Guangan Aaa PublicLtd 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 4 warning signs for Sichuan Guangan Aaa PublicLtd that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.