When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Haier Smart Home Co., Ltd. (SHSE:600690) as a highly attractive investment with its 14.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Haier Smart Home certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you 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:600690 Price to Earnings Ratio vs Industry July 15th 2024 If you'd like to see what analysts are forecasting going forward, you should check out our free report on Haier Smart Home.
Is There Any Growth For Haier Smart Home?
In order to justify its P/E ratio, Haier Smart Home would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered an exceptional 15% gain to the company's bottom line. The latest three year period has also seen a 26% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 11% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.
With this information, we can see why Haier Smart Home is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Haier Smart Home'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Haier Smart Home with six simple checks.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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