There wouldn't be many who think Shanghai Geoharbour Construction Group Co., Ltd.'s (SHSE:605598) price-to-earnings (or "P/E") ratio of 25.1x is worth a mention when the median P/E in China is similar at about 28x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Shanghai Geoharbour Construction Group has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

How Is Shanghai Geoharbour Construction Group's Growth Trending?

The only time you'd be comfortable seeing a P/E like Shanghai Geoharbour Construction Group's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 118%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 28% per annum during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 25% per year, which is noticeably less attractive.

In light of this, it's curious that Shanghai Geoharbour Construction Group's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shanghai Geoharbour Construction Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some 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 1 warning sign for Shanghai Geoharbour Construction Group that you need to take into consideration.

If these risks are making you reconsider your opinion on Shanghai Geoharbour Construction Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.