Investors Appear Satisfied With China Renaissance Holdings Limited's (HKG:1911) Prospects As Shares Rocket 31%

Despite an already strong run, China Renaissance Holdings Limited (HKG:1911) shares have been powering on, with a gain of 31% in the last thirty days. The last month tops off a massive increase of 165% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about China Renaissance Holdings' P/E ratio of 12.3x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for China Renaissance Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for China Renaissance Holdings

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Is There Some Growth For China Renaissance Holdings?

There's an inherent assumption that a company should be matching the market for P/E ratios like China Renaissance Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 326% gain to the company's bottom line. The latest three year period has also seen an excellent 244,108% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the four analysts watching the company. That's shaping up to be similar to the 20% per annum growth forecast for the broader market.

With this information, we can see why China Renaissance Holdings is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On China Renaissance Holdings' P/E

Its shares have lifted substantially and now China Renaissance Holdings' P/E is also back up to the market median. 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.

As we suspected, our examination of China Renaissance Holdings' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for China Renaissance Holdings you should know about.

You might be able to find a better investment than China Renaissance Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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