Little Excitement Around The People's Insurance Company (Group) of China Limited's (HKG:1339) Earnings

The People's Insurance Company (Group) of China Limited's (HKG:1339) price-to-earnings (or "P/E") ratio of 5.8x might make it look like a strong buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 26x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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People's Insurance Company (Group) of China certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for People's Insurance Company (Group) of China

If you'd like to see what analysts are forecasting going forward, you should check out our free report on People's Insurance Company (Group) of China.

Is There Any Growth For People's Insurance Company (Group) of China?

There's an inherent assumption that a company should far underperform the market for P/E ratios like People's Insurance Company (Group) of China's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 83%. The latest three year period has also seen an excellent 95% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 0.3% per year over the next three years. With the market predicted to deliver 14% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why People's Insurance Company (Group) of China is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of People's Insurance Company (Group) of China's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for People's Insurance Company (Group) of China you should be aware of.

Of course, you might also be able to find a better stock than People's Insurance Company (Group) of China. 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.