A Piece Of The Puzzle Missing From Yixin Group Limited's (HKG:2858) Share Price

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Yixin Group Limited (HKG:2858) as an attractive investment with its 7.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Yixin Group has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, 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 Yixin Group

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 35%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 12% each year, which is noticeably less attractive.

With this information, we find it odd that Yixin Group is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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.

Our examination of Yixin Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Yixin Group (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Yixin Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.