There's No Escaping Yangzijiang Financial Holding Ltd.'s (SGX:YF8) Muted Earnings

Yangzijiang Financial Holding Ltd.'s (SGX:YF8) price-to-earnings (or "P/E") ratio of 6.1x might 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 11x and even P/E's above 21x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Yangzijiang Financial Holding has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

See our latest analysis for Yangzijiang Financial Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yangzijiang Financial Holding.

How Is Yangzijiang Financial Holding's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. Still, incredibly EPS has fallen 29% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 3.9% per year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 8.8% per annum, which is noticeably more attractive.

With this information, we can see why Yangzijiang Financial Holding is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Yangzijiang Financial Holding's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Yangzijiang Financial Holding's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Yangzijiang Financial Holding that you should be aware of.

If these risks are making you reconsider your opinion on Yangzijiang Financial Holding, 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.