Hangzhou Fortune Gas Cryogenic Group Co., Ltd.'s (SHSE:603173) Low P/E No Reason For Excitement

With a price-to-earnings (or "P/E") ratio of 18.5x Hangzhou Fortune Gas Cryogenic Group Co., Ltd. (SHSE:603173) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 28x and even P/E's higher than 53x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Earnings have risen at a steady rate over the last year for Hangzhou Fortune Gas Cryogenic Group, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

See our latest analysis for Hangzhou Fortune Gas Cryogenic Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hangzhou Fortune Gas Cryogenic Group's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Hangzhou Fortune Gas Cryogenic Group's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.4% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

In contrast to the company, the rest of the market is expected to grow by 36% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Hangzhou Fortune Gas Cryogenic Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From Hangzhou Fortune Gas Cryogenic Group's P/E?

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 Hangzhou Fortune Gas Cryogenic Group revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Hangzhou Fortune Gas Cryogenic Group that you need to take into consideration.

Of course, you might also be able to find a better stock than Hangzhou Fortune Gas Cryogenic Group. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com