China Hongqiao Group Limited's (HKG:1378) Shares Bounce 34% But Its Business Still Trails The Market

China Hongqiao Group Limited (HKG:1378) shareholders have had their patience rewarded with a 34% share price jump in the last month. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, China Hongqiao Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.4x, since almost half of all companies in Hong Kong have P/E ratios greater than 9x and even P/E's higher than 18x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

China Hongqiao Group certainly has been doing a good job lately as it's been growing earnings more 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 Hongqiao Group

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

Is There Any Growth For China Hongqiao Group?

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

If we review the last year of earnings growth, the company posted a terrific increase of 29%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 5.2% per year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15% per year, which is noticeably more attractive.

In light of this, it's understandable that China Hongqiao Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From China Hongqiao Group's P/E?

The latest share price surge wasn't enough to lift China Hongqiao Group's P/E close to the market median. 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 China Hongqiao 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. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with China Hongqiao Group, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on China Hongqiao Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.