When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Shenzhen Liande Automation Equipment co.,ltd. (SZSE:300545) as an attractive investment with its 22.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Shenzhen Liande Automation Equipmentltd certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
How Is Shenzhen Liande Automation Equipmentltd's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Shenzhen Liande Automation Equipmentltd's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 134% last year. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 31% over the next year. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.
In light of this, it's understandable that Shenzhen Liande Automation Equipmentltd'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 Bottom Line On Shenzhen Liande Automation Equipmentltd'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.
As we suspected, our examination of Shenzhen Liande Automation Equipmentltd'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.
You should always think about risks. Case in point, we've spotted 1 warning sign for Shenzhen Liande Automation Equipmentltd you should be aware of.
If you're unsure about the strength of Shenzhen Liande Automation Equipmentltd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.