Yutong Heavy Industries Co.,Ltd.'s (SHSE:600817) Low P/E No Reason For Excitement

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 37x, you may consider Yutong Heavy Industries Co.,Ltd. (SHSE:600817) as an attractive investment with its 29x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Yutong Heavy IndustriesLtd has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Yutong Heavy IndustriesLtd

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

How Is Yutong Heavy IndustriesLtd's Growth Trending?

In order to justify its P/E ratio, Yutong Heavy IndustriesLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 37% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 21% over the next year. Meanwhile, the rest of the market is forecast to expand by 37%, which is noticeably more attractive.

In light of this, it's understandable that Yutong Heavy IndustriesLtd'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

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 Yutong Heavy IndustriesLtd'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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Yutong Heavy IndustriesLtd you should be aware of, and 1 of them shouldn't be ignored.

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.