Why We're Not Concerned About Yangzijiang Shipbuilding (Holdings) Ltd.'s (SGX:BS6) Share Price

It's not a stretch to say that Yangzijiang Shipbuilding (Holdings) Ltd.'s (SGX:BS6) price-to-earnings (or "P/E") ratio of 9.9x right now seems quite "middle-of-the-road" compared to the market in Singapore, where the median P/E ratio is around 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Yangzijiang Shipbuilding (Holdings) has been doing relatively well. 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.

Check out our latest analysis for Yangzijiang Shipbuilding (Holdings)

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

Does Growth Match The P/E?

In order to justify its P/E ratio, Yangzijiang Shipbuilding (Holdings) would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 71% last year. The latest three year period has also seen an excellent 140% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 9.5% per year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 9.9% per annum, which is not materially different.

In light of this, it's understandable that Yangzijiang Shipbuilding (Holdings)'s P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

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.

We've established that Yangzijiang Shipbuilding (Holdings) maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Yangzijiang Shipbuilding (Holdings) with six simple checks.

If you're unsure about the strength of Yangzijiang Shipbuilding (Holdings)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.