Cautious Investors Not Rewarding Anhui Yingliu Electromechanical Co., Ltd.'s (SHSE:603308) Performance Completely

Anhui Yingliu Electromechanical Co., Ltd.'s (SHSE:603308) price-to-earnings (or "P/E") ratio of 22.6x might make it look like a 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Anhui Yingliu Electromechanical has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Anhui Yingliu Electromechanical

Want the full picture on analyst estimates for the company? Then our free report on Anhui Yingliu Electromechanical will help you uncover what's on the horizon.

How Is Anhui Yingliu Electromechanical's Growth Trending?

Anhui Yingliu Electromechanical's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 33%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 32% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 29% per annum as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 20% per year growth forecast for the broader market.

With this information, we find it odd that Anhui Yingliu Electromechanical is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

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 Anhui Yingliu Electromechanical currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - Anhui Yingliu Electromechanical has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

You might be able to find a better investment than Anhui Yingliu Electromechanical. 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.