China Cinda Asset Management Co., Ltd. (HKG:1359) shareholders have had their patience rewarded with a 71% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.
Since its price has surged higher, China Cinda Asset Management may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 15.8x, since almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
While the market has experienced earnings growth lately, China Cinda Asset Management's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
View our latest analysis for China Cinda Asset Management
Is There Enough Growth For China Cinda Asset Management?
The only time you'd be truly comfortable seeing a P/E as steep as China Cinda Asset Management's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 52%. The last three years don't look nice either as the company has shrunk EPS by 72% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Looking ahead now, EPS is anticipated to climb by 48% per annum during the coming three years according to the dual analysts following the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.
With this information, we can see why China Cinda Asset Management is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On China Cinda Asset Management's P/E
Shares in China Cinda Asset Management have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that China Cinda Asset Management maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we've spotted 5 warning signs for China Cinda Asset Management you should be aware of, and 1 of them shouldn't be ignored.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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.