Even With A 30% Surge, Cautious Investors Are Not Rewarding Noah Holdings Limited's (NYSE:NOAH) Performance Completely

Noah Holdings Limited (NYSE:NOAH) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Even after such a large jump in price, Noah Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.9x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 34x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Noah Holdings has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Noah Holdings

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

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Noah 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 23%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the seven analysts watching the company. With the market only predicted to deliver 10% each year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Noah Holdings' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Noah Holdings' recent share price jump still sees its P/E sitting firmly flat on the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Noah Holdings 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.

It is also worth noting that we have found 3 warning signs for Noah Holdings 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.