Not Many Are Piling Into Shantui Construction Machinery Co., Ltd. (SZSE:000680) Stock Yet As It Plummets 29%

Shantui Construction Machinery Co., Ltd. (SZSE:000680) shares have had a horrible month, losing 29% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 22%.

After such a large drop in price, Shantui Construction Machinery may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.1x, since almost half of all companies in China have P/E ratios greater than 28x and even P/E's higher than 52x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Shantui Construction Machinery certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

View our latest analysis for Shantui Construction Machinery

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

Does Growth Match The Low P/E?

Shantui Construction Machinery'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.

Taking a look back first, we see that the company grew earnings per share by an impressive 84% last year. The strong recent performance means it was also able to grow EPS by 320% 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 24% per year as estimated by the two analysts watching the company. With the market predicted to deliver 24% growth each year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Shantui Construction Machinery is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Shantui Construction Machinery's P/E

Shantui Construction Machinery's P/E looks about as weak as its stock price lately. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Shantui Construction Machinery's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Shantui Construction Machinery (1 is concerning) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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