Lanzhou LS Heavy Equipment Co., Ltd's (SHSE:603169) P/E Still Appears To Be Reasonable

Lanzhou LS Heavy Equipment Co., Ltd's (SHSE:603169) price-to-earnings (or "P/E") ratio of 43.4x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times haven't been advantageous for Lanzhou LS Heavy Equipment as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Lanzhou LS Heavy Equipment

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

Is There Enough Growth For Lanzhou LS Heavy Equipment?

There's an inherent assumption that a company should outperform the market for P/E ratios like Lanzhou LS Heavy Equipment's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.7%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 85% as estimated by the dual analysts watching the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

With this information, we can see why Lanzhou LS Heavy Equipment is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Lanzhou LS Heavy Equipment's P/E

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 Lanzhou LS Heavy Equipment maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Lanzhou LS Heavy Equipment that you need to be mindful of.

You might be able to find a better investment than Lanzhou LS Heavy Equipment. 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.