Guangdong Join-Share Financing Guarantee Investment Co., Ltd. (HKG:1543) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Guangdong Join-Share Financing Guarantee Investment Co., Ltd. (HKG:1543) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 57% share price drop in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Guangdong Join-Share Financing Guarantee Investment's P/E ratio of 10.7x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Earnings have risen firmly for Guangdong Join-Share Financing Guarantee Investment recently, which is pleasing to see. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

See our latest analysis for Guangdong Join-Share Financing Guarantee Investment

Although there are no analyst estimates available for Guangdong Join-Share Financing Guarantee Investment, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The P/E?

In order to justify its P/E ratio, Guangdong Join-Share Financing Guarantee Investment would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.8%. Still, lamentably EPS has fallen 49% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Guangdong Join-Share Financing Guarantee Investment's P/E sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

What We Can Learn From Guangdong Join-Share Financing Guarantee Investment's P/E?

Guangdong Join-Share Financing Guarantee Investment appears to be back in favour with a solid price jump getting its P/E back in line with 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.

Our examination of Guangdong Join-Share Financing Guarantee Investment revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Guangdong Join-Share Financing Guarantee Investment (1 can't be ignored!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Guangdong Join-Share Financing Guarantee Investment, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.