A Piece Of The Puzzle Missing From China Taiping Insurance Holdings Company Limited's (HKG:966) 54% Share Price Climb

China Taiping Insurance Holdings Company Limited (HKG:966) shares have continued their recent momentum with a 54% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 81%.

Although its price has surged higher, it's still not a stretch to say that China Taiping Insurance Holdings' price-to-earnings (or "P/E") ratio of 8.7x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 10x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for China Taiping Insurance Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for China Taiping Insurance Holdings

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What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, China Taiping Insurance Holdings would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. Still, incredibly EPS has fallen 32% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the twelve analysts watching the company. With the market only predicted to deliver 12% per year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that China Taiping Insurance Holdings is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now China Taiping Insurance Holdings' P/E is also back up to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of China Taiping Insurance Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for China Taiping Insurance Holdings with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than China Taiping Insurance Holdings. 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.