Investors Still Aren't Entirely Convinced By China Reinsurance (Group) Corporation's (HKG:1508) Earnings Despite 25% Price Jump

China Reinsurance (Group) Corporation (HKG:1508) shareholders have had their patience rewarded with a 25% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.8% in the last twelve months.

Although its price has surged higher, China Reinsurance (Group)'s price-to-earnings (or "P/E") ratio of 5.9x might still make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 9x and even P/E's above 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for China Reinsurance (Group) as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

Check out our latest analysis for China Reinsurance (Group)

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

Is There Any Growth For China Reinsurance (Group)?

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

If we review the last year of earnings growth, the company posted a terrific increase of 42%. Still, incredibly EPS has fallen 34% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 20% each year over the next three years. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader market.

With this information, we find it odd that China Reinsurance (Group) is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From China Reinsurance (Group)'s P/E?

The latest share price surge wasn't enough to lift China Reinsurance (Group)'s P/E close to the market median. 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.

Our examination of China Reinsurance (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. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for China Reinsurance (Group) with six simple checks.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.