China Aviation Oil (Singapore) Corporation Ltd's (SGX:G92) Shares Bounce 25% But Its Business Still Trails The Market

China Aviation Oil (Singapore) Corporation Ltd (SGX:G92) shareholders have had their patience rewarded with a 25% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 73%.

Even after such a large jump in price, China Aviation Oil (Singapore)'s price-to-earnings (or "P/E") ratio of 11.9x 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 15x and even P/E's above 25x are quite common. 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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Recent earnings growth for China Aviation Oil (Singapore) has been in line with the market. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Check out our latest analysis for China Aviation Oil (Singapore)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Aviation Oil (Singapore).

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a decent 5.4% gain to the company's bottom line. The latest three year period has also seen an excellent 140% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 8.2% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 12% per annum, which is noticeably more attractive.

With this information, we can see why China Aviation Oil (Singapore) is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On China Aviation Oil (Singapore)'s P/E

Despite China Aviation Oil (Singapore)'s shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that China Aviation Oil (Singapore) maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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 is also worth noting that we have found 1 warning sign for China Aviation Oil (Singapore) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.