There Is A Reason Ningbo Huaxiang Electronic Co., Ltd.'s (SZSE:002048) Price Is Undemanding

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Ningbo Huaxiang Electronic Co., Ltd. (SZSE:002048) as a highly attractive investment with its 9.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for Ningbo Huaxiang Electronic as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Ningbo Huaxiang Electronic

Want the full picture on analyst estimates for the company? Then our free report on Ningbo Huaxiang Electronic will help you uncover what's on the horizon.

How Is Ningbo Huaxiang Electronic's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Ningbo Huaxiang Electronic's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.6% last year. Still, lamentably EPS has fallen 18% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 18% per year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to expand by 25% per year, which is noticeably more attractive.

In light of this, it's understandable that Ningbo Huaxiang Electronic's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Ningbo Huaxiang Electronic's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Ningbo Huaxiang Electronic'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com