Ningbo Haitian Precision Machinery Co.,Ltd.'s (SHSE:601882) Low P/E No Reason For Excitement

With a price-to-earnings (or "P/E") ratio of 21.2x Ningbo Haitian Precision Machinery Co.,Ltd. (SHSE:601882) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 69x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Ningbo Haitian Precision MachineryLtd has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Ningbo Haitian Precision MachineryLtd

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How Is Ningbo Haitian Precision MachineryLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Ningbo Haitian Precision MachineryLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 7.6% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 80% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 27% during the coming year according to the five analysts following the company. With the market predicted to deliver 39% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Ningbo Haitian Precision MachineryLtd 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

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 Haitian Precision MachineryLtd 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Ningbo Haitian Precision MachineryLtd with six simple checks.

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

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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.