ManpowerGroup Greater China Limited's (HKG:2180) Shares Bounce 28% But Its Business Still Trails The Market

ManpowerGroup Greater China Limited (HKG:2180) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 55% in the last year.

Even after such a large jump in price, ManpowerGroup Greater China's price-to-earnings (or "P/E") ratio of 9.6x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 26x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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ManpowerGroup Greater China has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for ManpowerGroup Greater China

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 ManpowerGroup Greater China's earnings, revenue and cash flow.

How Is ManpowerGroup Greater China's Growth Trending?

In order to justify its P/E ratio, ManpowerGroup Greater China would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10%. The latest three year period has also seen a 6.2% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why ManpowerGroup Greater China 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.

The Bottom Line On ManpowerGroup Greater China's P/E

The latest share price surge wasn't enough to lift ManpowerGroup Greater China's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of ManpowerGroup Greater China revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with ManpowerGroup Greater China (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

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.