With a price-to-earnings (or "P/E") ratio of 14.4x Guanghui Logistics Co.Ltd (SHSE:600603) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 56x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been pleasing for Guanghui LogisticsLtd as its earnings have risen in spite of the market's earnings going into reverse. 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.

Check out our latest analysis for Guanghui LogisticsLtd

How Is Guanghui LogisticsLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Guanghui LogisticsLtd's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 131% last year. Still, incredibly EPS has fallen 30% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 44% over the next year. Meanwhile, the rest of the market is forecast to expand by 42%, which is not materially different.

With this information, we find it odd that Guanghui LogisticsLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Guanghui LogisticsLtd'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.

Our examination of Guanghui LogisticsLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Having said that, be aware Guanghui LogisticsLtd is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Guanghui LogisticsLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.