Ningbo Xusheng Group Co., Ltd.'s (SHSE:603305) Low P/E No Reason For Excitement

With a price-to-earnings (or "P/E") ratio of 15.4x Ningbo Xusheng Group Co., Ltd. (SHSE:603305) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 53x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, Ningbo Xusheng Group's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Ningbo Xusheng Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ningbo Xusheng Group.

How Is Ningbo Xusheng Group's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 71% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially lower than the 25% per annum growth forecast for the broader market.

In light of this, it's understandable that Ningbo Xusheng Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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 Ningbo Xusheng Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Ningbo Xusheng Group that you should be aware of.

You might be able to find a better investment than Ningbo Xusheng Group. 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.

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