Improved Earnings Required Before Suzhou Secote Precision Electronic Co.,LTD (SHSE:603283) Shares Find Their Feet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Suzhou Secote Precision Electronic Co.,LTD (SHSE:603283) as an attractive investment with its 19.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Suzhou Secote Precision ElectronicLTD has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Suzhou Secote Precision ElectronicLTD

Keen to find out how analysts think Suzhou Secote Precision ElectronicLTD's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Suzhou Secote Precision ElectronicLTD would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 93% gain to the company's bottom line. The latest three year period has also seen an excellent 277% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 19% over the next year. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Suzhou Secote Precision ElectronicLTD 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.

What We Can Learn From Suzhou Secote Precision ElectronicLTD's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Suzhou Secote Precision ElectronicLTD maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Suzhou Secote Precision ElectronicLTD with six simple checks on some of these key factors.

You might be able to find a better investment than Suzhou Secote Precision ElectronicLTD. 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.