Even With A 31% Surge, Cautious Investors Are Not Rewarding Yangzijiang Financial Holding Ltd.'s (SGX:YF8) Performance Completely

Despite an already strong run, Yangzijiang Financial Holding Ltd. (SGX:YF8) shares have been powering on, with a gain of 31% in the last thirty days. The last 30 days bring the annual gain to a very sharp 80%.

In spite of the firm bounce in price, Yangzijiang Financial Holding's price-to-earnings (or "P/E") ratio of 6.8x might still make it look like a buy right now compared to the market in Singapore, where around half of the companies have P/E ratios above 13x and even P/E's above 21x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Yangzijiang Financial Holding as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Yangzijiang Financial Holding

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

How Is Yangzijiang Financial Holding's Growth Trending?

In order to justify its P/E ratio, Yangzijiang Financial Holding would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 57% last year. The latest three year period has also seen a 5.7% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 389% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 7.5% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Yangzijiang Financial Holding's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Yangzijiang Financial Holding's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Yangzijiang Financial Holding currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Yangzijiang Financial Holding with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Yangzijiang Financial Holding. 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.