There wouldn't be many who think Xiamen Hexing Packaging Printing Co., Ltd.'s (SZSE:002228) price-to-earnings (or "P/E") ratio of 34.5x is worth a mention when the median P/E in China is similar at about 32x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
With earnings that are retreating more than the market's of late, Xiamen Hexing Packaging Printing has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.
Check out our latest analysis for Xiamen Hexing Packaging Printing
Does Growth Match The P/E?
Xiamen Hexing Packaging Printing's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 65% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 71% over the next year. With the market only predicted to deliver 43%, the company is positioned for a stronger earnings result.
In light of this, it's curious that Xiamen Hexing Packaging Printing's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Final Word
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Xiamen Hexing Packaging Printing currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Having said that, be aware Xiamen Hexing Packaging Printing is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.
Of course, you might also be able to find a better stock than Xiamen Hexing Packaging Printing. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
