Fewer Investors Than Expected Jumping On Zhongsheng Group Holdings Limited (HKG:881)

With a price-to-earnings (or "P/E") ratio of 8x Zhongsheng Group Holdings Limited (HKG:881) may be sending bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 11x and even P/E's higher than 22x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Zhongsheng Group Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Zhongsheng Group Holdings

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

How Is Zhongsheng Group Holdings' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhongsheng Group Holdings' to be considered reasonable.

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 35%. As a result, earnings from three years ago have also fallen 62% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 24% per year over the next three years. With the market only predicted to deliver 14% each year, the company is positioned for a stronger earnings result.

With this information, we find it odd that Zhongsheng Group Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Zhongsheng Group Holdings' P/E

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 Zhongsheng Group Holdings' 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Zhongsheng Group Holdings has 2 warning signs we think you should be aware of.

You might be able to find a better investment than Zhongsheng Group Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.