Not Many Are Piling Into Shandong Linglong Tyre Co.,Ltd. (SHSE:601966) Just Yet

Shandong Linglong Tyre Co.,Ltd.'s (SHSE:601966) price-to-earnings (or "P/E") ratio of 14.9x 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Shandong Linglong TyreLtd has been doing relatively well. 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.

Check out our latest analysis for Shandong Linglong TyreLtd

Keen to find out how analysts think Shandong Linglong TyreLtd's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

Shandong Linglong TyreLtd'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 173% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 41% 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.

Looking ahead now, EPS is anticipated to climb by 24% per annum during the coming three years according to the eight analysts following the company. With the market predicted to deliver 24% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Shandong Linglong TyreLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Shandong Linglong TyreLtd's P/E

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 Shandong Linglong TyreLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shandong Linglong TyreLtd that you should be aware of.

If these risks are making you reconsider your opinion on Shandong Linglong TyreLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.