There's No Escaping China Reinsurance (Group) Corporation's (HKG:1508) Muted Earnings Despite A 26% Share Price Rise

Despite an already strong run, China Reinsurance (Group) Corporation (HKG:1508) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 170% in the last year.

In spite of the firm bounce in price, China Reinsurance (Group) may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.6x, since almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 28x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for China Reinsurance (Group) as its earnings have been rising faster 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.

See our latest analysis for China Reinsurance (Group)

Want the full picture on analyst estimates for the company? Then our free report on China Reinsurance (Group) will help you uncover what's on the horizon.

Is There Any Growth For China Reinsurance (Group)?

The only time you'd be truly comfortable seeing a P/E as low as China Reinsurance (Group)'s is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 87% last year. The latest three year period has also seen an excellent 77% 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.

Turning to the outlook, the next three years should generate growth of 1.9% each year as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

With this information, we can see why China Reinsurance (Group) is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On China Reinsurance (Group)'s P/E

Despite China Reinsurance (Group)'s shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of China Reinsurance (Group)'s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for China Reinsurance (Group) that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.