A Piece Of The Puzzle Missing From Zoomlion Heavy Industry Science and Technology Co., Ltd.'s (SZSE:000157) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Zoomlion Heavy Industry Science and Technology Co., Ltd. (SZSE:000157) as a highly attractive investment with its 15.5x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Zoomlion Heavy Industry Science and Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 Zoomlion Heavy Industry Science and Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zoomlion Heavy Industry Science and Technology.

How Is Zoomlion Heavy Industry Science and Technology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Zoomlion Heavy Industry Science and Technology's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 46%. Still, incredibly EPS has fallen 58% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 18% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 18% per annum, which is not materially different.

With this information, we find it odd that Zoomlion Heavy Industry Science and Technology is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Zoomlion Heavy Industry Science and Technology currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Zoomlion Heavy Industry Science and Technology you should be aware of.

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.