Little Excitement Around Jiangsu Guoxin Corp. Ltd.'s (SZSE:002608) Earnings

Jiangsu Guoxin Corp. Ltd.'s (SZSE:002608) price-to-earnings (or "P/E") ratio of 10.4x 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 33x and even P/E's above 64x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jiangsu Guoxin has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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 Jiangsu Guoxin

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Guoxin.

Is There Any Growth For Jiangsu Guoxin?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jiangsu Guoxin's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 497% gain to the company's bottom line. The latest three year period has also seen a 8.4% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 13% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 18% each year growth forecast for the broader market.

In light of this, it's understandable that Jiangsu Guoxin'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.

The Final Word

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 Jiangsu Guoxin'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.

You need to take note of risks, for example - Jiangsu Guoxin has 2 warning signs (and 1 which can't be ignored) we think you should know about.

If you're unsure about the strength of Jiangsu Guoxin'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.