Investors Don't See Light At End Of Shandong Hi-Speed Road&Bridge Group Co., Ltd.'s (SZSE:000498) Tunnel

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider Shandong Hi-Speed Road&Bridge Group Co., Ltd. (SZSE:000498) as a highly attractive investment with its 4.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings that are retreating more than the market's of late, Shandong Hi-Speed Road&Bridge Group has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Shandong Hi-Speed Road&Bridge Group

Keen to find out how analysts think Shandong Hi-Speed Road&Bridge Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Shandong Hi-Speed Road&Bridge Group's Growth Trending?

Shandong Hi-Speed Road&Bridge Group's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 17% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 36% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

With this information, we can see why Shandong Hi-Speed Road&Bridge Group 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 Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Shandong Hi-Speed Road&Bridge Group 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.

You need to take note of risks, for example - Shandong Hi-Speed Road&Bridge Group has 2 warning signs (and 1 which is concerning) we think you should know about.

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.