Further Upside For China Taiping Insurance Holdings Company Limited (HKG:966) Shares Could Introduce Price Risks After 27% Bounce

China Taiping Insurance Holdings Company Limited (HKG:966) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

In spite of the firm bounce in price, China Taiping Insurance Holdings' 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 17x 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 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 degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for China Taiping Insurance Holdings

Keen to find out how analysts think China Taiping Insurance Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is China Taiping Insurance Holdings' Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 78%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 32% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the twelve analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is not materially different.

With this information, we find it odd that China Taiping Insurance Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From China Taiping Insurance Holdings' P/E?

The latest share price surge wasn't enough to lift China Taiping Insurance Holdings' P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of China Taiping Insurance Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Many other vital risk factors can be found on the 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 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.