Ningbo Shanshan Co.,Ltd.'s (SHSE:600884) price-to-earnings (or "P/E") ratio of 14.6x 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 30x and even P/E's above 55x 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.
Ningbo ShanshanLtd 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 you still 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.
SHSE:600884 Price to Earnings Ratio vs Industry April 26th 2024 Want the full picture on analyst estimates for the company? Then our free report on Ningbo ShanshanLtd will help you uncover what's on the horizon.
What Are Growth Metrics Telling Us About The Low P/E?
Ningbo ShanshanLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. Even so, admirably EPS has lifted 321% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 7.7% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 21% per annum, which is noticeably more attractive.
In light of this, it's understandable that Ningbo ShanshanLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Ningbo ShanshanLtd's P/E?
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 Ningbo ShanshanLtd 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.
It is also worth noting that we have found 4 warning signs for Ningbo ShanshanLtd (2 are a bit concerning!) that you need to take into consideration.
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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