Qingdao Sentury Tire Co., Ltd.'s (SZSE:002984) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 11.7x Qingdao Sentury Tire Co., Ltd. (SZSE:002984) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 65x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Qingdao Sentury Tire as its earnings have risen in spite of the market's earnings going into reverse. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Qingdao Sentury Tire

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

Is There Any Growth For Qingdao Sentury Tire?

In order to justify its P/E ratio, Qingdao Sentury Tire would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 96%. The strong recent performance means it was also able to grow EPS by 122% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 0.9% over the next year. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

With this information, we can see why Qingdao Sentury Tire is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Qingdao Sentury Tire's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Qingdao Sentury Tire'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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Qingdao Sentury Tire (1 doesn't sit too well with us) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.