XTC New Energy Materials(Xiamen) Co.,Ltd.'s (SHSE:688778) Subdued P/E Might Signal An Opportunity

With a median price-to-earnings (or "P/E") ratio of close to 29x in China, you could be forgiven for feeling indifferent about XTC New Energy Materials(Xiamen) Co.,Ltd.'s (SHSE:688778) P/E ratio of 27.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

XTC New Energy Materials(Xiamen)Ltd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for XTC New Energy Materials(Xiamen)Ltd

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How Is XTC New Energy Materials(Xiamen)Ltd's Growth Trending?

XTC New Energy Materials(Xiamen)Ltd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 52%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 33% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 21% per year, which is noticeably less attractive.

In light of this, it's curious that XTC New Energy Materials(Xiamen)Ltd's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

We've established that XTC New Energy Materials(Xiamen)Ltd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for XTC New Energy Materials(Xiamen)Ltd that you need to take into consideration.

If you're unsure about the strength of XTC New Energy Materials(Xiamen)Ltd'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.