A Piece Of The Puzzle Missing From Ping An Insurance (Group) Company of China, Ltd.'s (HKG:2318) Share Price

Ping An Insurance (Group) Company of China, Ltd.'s (HKG:2318) price-to-earnings (or "P/E") ratio of 7x might 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 10x and even P/E's above 19x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Ping An Insurance (Group) Company of China as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Ping An Insurance (Group) Company of China

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

Is There Any Growth For Ping An Insurance (Group) Company of China?

In order to justify its P/E ratio, Ping An Insurance (Group) Company of China would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 31%. As a result, earnings from three years ago have also fallen 38% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 35% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 16% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Ping An Insurance (Group) Company of China's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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.

Our examination of Ping An Insurance (Group) Company of China'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. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ping An Insurance (Group) Company of China that you should be aware of.

Of course, you might also be able to find a better stock than Ping An Insurance (Group) Company 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.