Many Still Looking Away From Shanghai Daimay Automotive Interior Co., Ltd (SHSE:603730)

Shanghai Daimay Automotive Interior Co., Ltd's (SHSE:603730) price-to-earnings (or "P/E") ratio of 22.7x 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 35x and even P/E's above 70x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Shanghai Daimay Automotive Interior 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.

Check out our latest analysis for Shanghai Daimay Automotive Interior

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Daimay Automotive Interior.

Is There Any Growth For Shanghai Daimay Automotive Interior?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shanghai Daimay Automotive Interior's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 22%. Pleasingly, EPS has also lifted 38% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the five analysts watching the company. That's shaping up to be similar to the 19% each year growth forecast for the broader market.

In light of this, it's peculiar that Shanghai Daimay Automotive Interior'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 Shanghai Daimay Automotive Interior's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Shanghai Daimay Automotive Interior's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Shanghai Daimay Automotive Interior that you need to be mindful of.

You might be able to find a better investment than Shanghai Daimay Automotive Interior. 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.