Lacklustre Performance Is Driving Zhejiang Chint Electrics Co., Ltd.'s (SHSE:601877) Low P/E

Zhejiang Chint Electrics Co., Ltd.'s (SHSE:601877) price-to-earnings (or "P/E") ratio of 11.3x might make it look like a strong 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 52x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

While the market has experienced earnings growth lately, Zhejiang Chint Electrics' earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Zhejiang Chint Electrics

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

Is There Any Growth For Zhejiang Chint Electrics?

The only time you'd be truly comfortable seeing a P/E as depressed as Zhejiang Chint Electrics' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 43% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 24% per year growth forecast for the broader market.

With this information, we can see why Zhejiang Chint Electrics is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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 Zhejiang Chint Electrics' 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Zhejiang Chint Electrics that you should be aware of.

Of course, you might also be able to find a better stock than Zhejiang Chint Electrics. 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.