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When almost half of the companies in China have a price-earnings ratio (P/E) of over 30x, one can consider SF Holding Co., Ltd. (SZSE:002352) is an attractive investment with its P/E ratio of 19.8. However, it is not advisable to simply take the P/E ratio at face value as there might be a reason why it is capped.

The recent past has been favorable for SF Holding, with earnings growing faster than most other companies. One possibility is that the P/E ratio is low because investors think this strong earnings performance may be less impressive in the future. 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 SF Holding

Would you like to know how analysts assess the future of SF Holding compared to the industry? In this case free Report is a good starting point.

What do growth metrics tell us about the low P/E ratio?

SF Holding’s P/E ratio would be typical of a company that is expected to have limited growth and, more importantly, is underperforming the market.

Looking back, last year saw the company grow earnings by an exceptional 23%. The strong recent performance means that the company has also grown earnings per share by a total of 47% over the last three years. Accordingly, shareholders would likely have welcomed these medium-term earnings growth rates.

According to analysts, earnings per share are expected to grow by 15% per year over the next three years. The rest of the market is forecast to grow by 25% annually, which is much more attractive.

With this in mind, it is understandable that SF Holding’s P/E ratio is lower than most other companies. Apparently, most investors expect limited future growth and are only willing to pay a lower amount for the stock.

The conclusion on the P/E ratio of SF Holding

It is argued that the price-to-earnings ratio is not a good measure of a company’s value in certain industries, but can be a meaningful indicator of business sentiment.

We have noted that SF Holding maintains its low P/E because its forecast growth rates are expected to be lower than the broader market. Currently, shareholders accept the low P/E because they acknowledge that future earnings are unlikely to bring pleasant surprises. Unless these conditions improve, they will continue to act as a barrier to the share price near these levels.

You always have to keep an eye on risks, for example: SF Holding has 1 warning signal In our opinion, you should be aware of this.

it is important, that Make sure you are looking for a great company and not just the first idea that comes to mind. So take a look at the free List of interesting companies with strong recent earnings growth (and low P/E ratios).

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This Simply Wall St article is of a general nature. We comment based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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