Puyang Refractories Group Co., Ltd. (SZSE:002225) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.
Since its price has dipped substantially, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Puyang Refractories Group as a highly attractive investment with its 13.6x 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 so limited.
Puyang Refractories Group 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.
Is There Any Growth For Puyang Refractories Group?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Puyang Refractories Group's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 38%. However, this wasn't enough as the latest three year period has seen a very unpleasant 9.8% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the dual analysts watching the company. With the market predicted to deliver 25% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that Puyang Refractories Group'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.
The Bottom Line On Puyang Refractories Group's P/E
Shares in Puyang Refractories Group have plummeted and its P/E is now low enough to touch the ground. 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 Puyang Refractories Group 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.
Before you take the next step, you should know about the 2 warning signs for Puyang Refractories Group (1 is concerning!) that we have uncovered.
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.
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