Zhejiang Dingli Machinery Co.,Ltd's (SHSE:603338) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 17.3x Zhejiang Dingli Machinery Co.,Ltd (SHSE:603338) 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 55x 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.

Recent times have been advantageous for Zhejiang Dingli MachineryLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Zhejiang Dingli MachineryLtd

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

Is There Any Growth For Zhejiang Dingli MachineryLtd?

In order to justify its P/E ratio, Zhejiang Dingli MachineryLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 35%. The strong recent performance means it was also able to grow EPS by 148% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 21% per annum, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Dingli MachineryLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zhejiang Dingli MachineryLtd's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Zhejiang Dingli MachineryLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhejiang Dingli MachineryLtd that you should be aware of.

If you're unsure about the strength of Zhejiang Dingli MachineryLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.