Stanley Agriculture Group Co.,Ltd.'s (SZSE:002588) price-to-earnings (or "P/E") ratio of 12.8x 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 36x and even P/E's above 65x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Stanley Agriculture GroupLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 Stanley Agriculture GroupLtd
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as depressed as Stanley Agriculture GroupLtd's is when the company's growth is on track to lag the market decidedly.
Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. The latest three year period has also seen an excellent 217% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 16% over the next year. Meanwhile, the rest of the market is forecast to expand by 43%, which is noticeably more attractive.
With this information, we can see why Stanley Agriculture GroupLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From Stanley Agriculture GroupLtd's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that Stanley Agriculture GroupLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Stanley Agriculture GroupLtd that you should be aware of.
You might be able to find a better investment than Stanley Agriculture GroupLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.
