Zhejiang Songyuan Automotive Safety Systems Co.,Ltd.'s (SZSE:300893) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Zhejiang Songyuan Automotive Safety Systems Co.,Ltd. (SZSE:300893) as an attractive investment with its 24.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Zhejiang Songyuan Automotive Safety SystemsLtd as its earnings have risen in spite of the market's earnings going into reverse. 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 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.

See our latest analysis for Zhejiang Songyuan Automotive Safety SystemsLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Songyuan Automotive Safety SystemsLtd.

How Is Zhejiang Songyuan Automotive Safety SystemsLtd's Growth Trending?

In order to justify its P/E ratio, Zhejiang Songyuan Automotive Safety SystemsLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 75% gain to the company's bottom line. The latest three year period has also seen an excellent 163% overall rise in EPS, aided 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 four analysts covering the company suggest earnings should grow by 34% over the next year. Meanwhile, the rest of the market is forecast to expand by 39%, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Songyuan Automotive Safety SystemsLtd'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 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.

We've established that Zhejiang Songyuan Automotive Safety SystemsLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

It is also worth noting that we have found 3 warning signs for Zhejiang Songyuan Automotive Safety SystemsLtd (1 shouldn't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Zhejiang Songyuan Automotive Safety SystemsLtd. 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.