Stock Analysis

ZhongAn Online P & C Insurance Co., Ltd.'s (HKG:6060) 29% Jump Shows Its Popularity With Investors

SEHK:6060
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ZhongAn Online P & C Insurance Co., Ltd. (HKG:6060) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 48% over that time.

After such a large jump in price, ZhongAn Online P & C Insurance may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 26.3x, since almost half of all companies in Hong Kong have P/E ratios under 8x and even P/E's lower than 5x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

ZhongAn Online P & C Insurance certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for ZhongAn Online P & C Insurance

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SEHK:6060 Price Based on Past Earnings April 12th 2022
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ZhongAn Online P & C Insurance.

How Is ZhongAn Online P & C Insurance's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like ZhongAn Online P & C Insurance's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 110%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 23% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% per annum, which is noticeably less attractive.

With this information, we can see why ZhongAn Online P & C Insurance is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in ZhongAn Online P & C Insurance have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of ZhongAn Online P & C Insurance's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with ZhongAn Online P & C Insurance.

You might be able to find a better investment than ZhongAn Online P & C Insurance. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

Valuation is complex, but we're helping make it simple.

Find out whether ZhongAn Online P & C Insurance is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.