Xinhua Winshare Publishing and Media Co., Ltd.'s (HKG:811) price-to-earnings (or "P/E") ratio of 6.7x might make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 10x and even P/E's above 19x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
The earnings growth achieved at Xinhua Winshare Publishing and Media over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
View our latest analysis for Xinhua Winshare Publishing and Media
How Is Xinhua Winshare Publishing and Media's Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like Xinhua Winshare Publishing and Media's to be considered reasonable.
If we review the last year of earnings growth, the company posted a worthy increase of 13%. The latest three year period has also seen a 26% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
This is in contrast to the rest of the market, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's understandable that Xinhua Winshare Publishing and Media's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Xinhua Winshare Publishing and Media's P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Xinhua Winshare Publishing and Media maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Xinhua Winshare Publishing and Media that you need to be mindful of.
If these risks are making you reconsider your opinion on Xinhua Winshare Publishing and Media, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com