Improved Earnings Required Before Hunan Oil Pump Co., Ltd. (SHSE:603319) Shares Find Their Feet

With a price-to-earnings (or "P/E") ratio of 16.5x Hunan Oil Pump Co., Ltd. (SHSE:603319) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 58x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Hunan Oil Pump as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

See our latest analysis for Hunan Oil Pump

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

Is There Any Growth For Hunan Oil Pump?

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

Retrospectively, the last year delivered a decent 6.9% gain to the company's bottom line. EPS has also lifted 21% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 27% as estimated by the only analyst watching the company. That's shaping up to be materially lower than the 36% growth forecast for the broader market.

With this information, we can see why Hunan Oil Pump is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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 Hunan Oil Pump 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.

It is also worth noting that we have found 1 warning sign for Hunan Oil Pump that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.