Zhejiang Yinlun Machinery Co.,Ltd.'s (SZSE:002126) price-to-earnings (or "P/E") ratio of 18.4x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Zhejiang Yinlun MachineryLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
SZSE:002126 Price to Earnings Ratio vs Industry September 5th 2024 Keen to find out how analysts think Zhejiang Yinlun MachineryLtd's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The Low P/E?
Zhejiang Yinlun MachineryLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 37% last year. The strong recent performance means it was also able to grow EPS by 139% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 22% per year during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 20% per annum growth forecast for the broader market.
With this information, we find it odd that Zhejiang Yinlun MachineryLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly 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.
Our examination of Zhejiang Yinlun MachineryLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
Before you take the next step, you should know about the 1 warning sign for Zhejiang Yinlun MachineryLtd that we have uncovered.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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