Stock Analysis

What AVIC Airborne Systems Co., Ltd.'s (SHSE:600372) P/E Is Not Telling You

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It's not a stretch to say that AVIC Airborne Systems Co., Ltd.'s (SHSE:600372) price-to-earnings (or "P/E") ratio of 29.4x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 32x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

AVIC Airborne Systems certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

Check out our latest analysis for AVIC Airborne Systems

SHSE:600372 Price to Earnings Ratio vs Industry May 22nd 2024
Keen to find out how analysts think AVIC Airborne Systems' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, AVIC Airborne Systems would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 2.9% gain to the company's bottom line. EPS has also lifted 9.9% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 12% each year over the next three years. That's shaping up to be materially lower than the 26% per annum growth forecast for the broader market.

In light of this, it's curious that AVIC Airborne Systems' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On AVIC Airborne Systems' 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.

Our examination of AVIC Airborne Systems' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for AVIC Airborne Systems you should know about.

If these risks are making you reconsider your opinion on AVIC Airborne Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether AVIC Airborne Systems is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.