China Industrial Securities International Financial Group Limited's (HKG:6058) Shares Leap 26% Yet They're Still Not Telling The Full Story

The China Industrial Securities International Financial Group Limited (HKG:6058) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that China Industrial Securities International Financial Group's price-to-earnings (or "P/E") ratio of 12.1x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 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.

China Industrial Securities International Financial Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for China Industrial Securities International Financial Group

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 China Industrial Securities International Financial Group's earnings, revenue and cash flow.

Is There Some Growth For China Industrial Securities International Financial Group?

China Industrial Securities International Financial Group's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 69% last year. The latest three year period has also seen an excellent 130% 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.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that China Industrial Securities International Financial Group's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

China Industrial Securities International Financial Group 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.

We've established that China Industrial Securities International Financial Group currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for China Industrial Securities International Financial Group (1 doesn't sit too well with us) you should be aware of.

If you're unsure about the strength of China Industrial Securities International Financial 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.