When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider C&D International Investment Group Limited (HKG:1908) as an attractive investment with its 5.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

C&D International Investment Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is C&D International Investment Group's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like C&D International Investment Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 9.8% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 10.0% each year as estimated by the ten analysts watching the company. With the market predicted to deliver 15% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why C&D International Investment Group is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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 C&D International Investment Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for C&D International Investment Group that you need to take into consideration.

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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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.