The Market Doesn't Like What It Sees From Shenzhen Desay Battery Technology Co., Ltd.'s (SZSE:000049) Earnings Yet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider Shenzhen Desay Battery Technology Co., Ltd. (SZSE:000049) as an attractive investment with its 16.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings that are retreating more than the market's of late, Shenzhen Desay Battery Technology has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. 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.

Check out our latest analysis for Shenzhen Desay Battery Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Desay Battery Technology.

How Is Shenzhen Desay Battery Technology's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 39% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 50% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 16% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 20% each year, which is noticeably more attractive.

With this information, we can see why Shenzhen Desay Battery Technology 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.

What We Can Learn From Shenzhen Desay Battery Technology'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 Shenzhen Desay Battery Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 5 warning signs we've spotted with Shenzhen Desay Battery Technology (including 1 which is significant).

Of course, you might also be able to find a better stock than Shenzhen Desay Battery Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.