Hang Xiao Steel Structure Co.,Ltd's (SHSE:600477) Business And Shares Still Trailing The Market

Hang Xiao Steel Structure Co.,Ltd's (SHSE:600477) price-to-earnings (or "P/E") ratio of 20.7x 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 28x and even P/E's above 50x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for Hang Xiao Steel StructureLtd has been in line with the market. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Hang Xiao Steel StructureLtd

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Hang Xiao Steel StructureLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 63% drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 13% per annum over the next three years. With the market predicted to deliver 21% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Hang Xiao Steel StructureLtd'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.

What We Can Learn From Hang Xiao Steel StructureLtd'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.

As we suspected, our examination of Hang Xiao Steel StructureLtd'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.

Before you settle on your opinion, we've discovered 3 warning signs for Hang Xiao Steel StructureLtd (2 shouldn't be ignored!) 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.