Ningbo Sanxing Medical Electric Co.,Ltd.'s (SHSE:601567) Shares Lagging The Market But So Is The Business

Ningbo Sanxing Medical Electric Co.,Ltd.'s (SHSE:601567) 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 30x and even P/E's above 53x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Ningbo Sanxing Medical ElectricLtd has been doing quite well of late. 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 Ningbo Sanxing Medical ElectricLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ningbo Sanxing Medical ElectricLtd.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ningbo Sanxing Medical ElectricLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 133% last year. The latest three year period has also seen an excellent 76% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 26% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

In light of this, it's understandable that Ningbo Sanxing Medical ElectricLtd'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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Ningbo Sanxing Medical ElectricLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 1 warning sign for Ningbo Sanxing Medical ElectricLtd you should be aware of.

You might be able to find a better investment than Ningbo Sanxing Medical ElectricLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.