When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Guangdong Hongtu Technology (holdings) Co.,Ltd. (SZSE:002101) as an attractive investment with its 23.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
With earnings that are retreating more than the market's of late, Guangdong Hongtu Technology (holdings)Ltd has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
View our latest analysis for Guangdong Hongtu Technology (holdings)Ltd
Is There Any Growth For Guangdong Hongtu Technology (holdings)Ltd?
In order to justify its P/E ratio, Guangdong Hongtu Technology (holdings)Ltd would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Turning to the outlook, the next year should generate growth of 20% as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 43%, which is noticeably more attractive.
In light of this, it's understandable that Guangdong Hongtu Technology (holdings)Ltd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Guangdong Hongtu Technology (holdings)Ltd 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. 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 Guangdong Hongtu Technology (holdings)Ltd you should be aware of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.