Quechen Silicon Chemical Co., Ltd.'s (SHSE:605183) price-to-earnings (or "P/E") ratio of 15.1x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 32x and even P/E's above 58x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
For instance, Quechen Silicon Chemical's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
View our latest analysis for Quechen Silicon Chemical
Although there are no analyst estimates available for Quechen Silicon Chemical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Any Growth For Quechen Silicon Chemical?
In order to justify its P/E ratio, Quechen Silicon Chemical would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 55% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Comparing that to the market, which is predicted to deliver 43% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
With this information, we can see why Quechen Silicon Chemical is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Final Word
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Quechen Silicon Chemical revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
You should always think about risks. Case in point, we've spotted 1 warning sign for Quechen Silicon Chemical you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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Quechen Silicon Chemical Ltd. 's(SHSE: 605183)市盈率(或 “市盈率”)为15.1倍,与中国市场相比,目前看上去像是一个强劲的买盘,中国约有一半的公司的市盈率高于32倍,甚至市盈率高于58倍也很常见。尽管如此,我们需要更深入地挖掘,以确定市盈率大幅下降是否有合理的基础。