The Market Lifts Yixin Group Limited (HKG:2858) Shares 42% But It Can Do More

Despite an already strong run, Yixin Group Limited (HKG:2858) shares have been powering on, with a gain of 42% in the last thirty days. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Yixin Group's price-to-earnings (or "P/E") ratio of 9.8x is worth a mention when the median P/E in Hong Kong is similar at about 10x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the 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 wane, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for Yixin Group

Keen to find out how analysts think Yixin Group's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The P/E?

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

Retrospectively, the last year delivered an exceptional 35% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 16% each year over the next three years. That's shaping up to be materially higher than the 13% per year growth forecast for the broader market.

In light of this, it's curious that Yixin Group's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Yixin Group's P/E

Yixin Group appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

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

You need to take note of risks, for example - Yixin Group has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you're unsure about the strength of Yixin Group'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.