Jiangsu Xinquan Automotive Trim Co.,Ltd.'s (SHSE:603179) Shares Not Telling The Full Story

With a price-to-earnings (or "P/E") ratio of 26.1x Jiangsu Xinquan Automotive Trim Co.,Ltd. (SHSE:603179) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 39x and even P/E's higher than 77x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced 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. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Jiangsu Xinquan Automotive TrimLtd

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Is There Any Growth For Jiangsu Xinquan Automotive TrimLtd?

The only time you'd be truly comfortable seeing a P/E as low as Jiangsu Xinquan Automotive TrimLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 6.7% gain to the company's bottom line. The latest three year period has also seen an excellent 231% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 42% over the next year. That's shaping up to be materially higher than the 37% growth forecast for the broader market.

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

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.

Our examination of Jiangsu Xinquan Automotive TrimLtd'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. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Jiangsu Xinquan Automotive TrimLtd (1 doesn't sit too well with us!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Jiangsu Xinquan Automotive TrimLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.