When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Shanghai International Port (Group) Co., Ltd. (SHSE:600018) as a highly attractive investment with its 10.1x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
While the market has experienced earnings growth lately, Shanghai International Port (Group)'s earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Is There Any Growth For Shanghai International Port (Group)?
Shanghai International Port (Group)'s P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 58% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Looking ahead now, EPS is anticipated to climb by 1.1% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 21% per year growth forecast for the broader market.
With this information, we can see why Shanghai International Port (Group) 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 Shanghai International Port (Group)'s P/E
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.
As we suspected, our examination of Shanghai International Port (Group)'s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.
Before you settle on your opinion, we've discovered 1 warning sign for Shanghai International Port (Group) that you should be aware of.
If you're unsure about the strength of Shanghai International Port (Group)'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.