Jiangsu Xinquan Automotive Trim Co.,Ltd. (SHSE:603179) Investors Are Less Pessimistic Than Expected

There wouldn't be many who think Jiangsu Xinquan Automotive Trim Co.,Ltd.'s (SHSE:603179) price-to-earnings (or "P/E") ratio of 29.6x is worth a mention when the median P/E in China is similar at about 30x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Jiangsu Xinquan Automotive TrimLtd 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 deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Jiangsu Xinquan Automotive TrimLtd

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

Is There Some Growth For Jiangsu Xinquan Automotive TrimLtd?

There's an inherent assumption that a company should be matching the market for P/E ratios like Jiangsu Xinquan Automotive TrimLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 176%. The strong recent performance means it was also able to grow EPS by 139% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 22% as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

With this information, we find it interesting that Jiangsu Xinquan Automotive TrimLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Jiangsu Xinquan Automotive TrimLtd's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Jiangsu Xinquan Automotive TrimLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Jiangsu Xinquan Automotive TrimLtd (at least 1 which is potentially serious), and understanding these should be part of your investment process.

You might be able to find a better investment than Jiangsu Xinquan Automotive TrimLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.