When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Shandong Publishing&Media Co.,Ltd (SHSE:601019) as a highly attractive investment with its 12.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Shandong Publishing&MediaLtd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Shandong Publishing&MediaLtd
Is There Any Growth For Shandong Publishing&MediaLtd?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Shandong Publishing&MediaLtd's to be considered reasonable.
Retrospectively, the last year delivered a decent 15% gain to the company's bottom line. Pleasingly, EPS has also lifted 48% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 9.4% over the next year. Meanwhile, the rest of the market is forecast to expand by 44%, which is noticeably more attractive.
With this information, we can see why Shandong Publishing&MediaLtd 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 Final Word
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.
As we suspected, our examination of Shandong Publishing&MediaLtd'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.
You always need to take note of risks, for example - Shandong Publishing&MediaLtd has 1 warning sign we think you should be aware of.
Of course, you might also be able to find a better stock than Shandong Publishing&MediaLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.