There Is A Reason Sinotruk Jinan Truck Co.,Ltd's (SZSE:000951) Price Is Undemanding

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Sinotruk Jinan Truck Co.,Ltd (SZSE:000951) as an attractive investment with its 16.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Sinotruk Jinan TruckLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Sinotruk Jinan TruckLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sinotruk Jinan TruckLtd.

How Is Sinotruk Jinan TruckLtd's Growth Trending?

Sinotruk Jinan TruckLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 267% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 54% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 21% per annum over the next three years. That's shaping up to be materially lower than the 26% each year growth forecast for the broader market.

With this information, we can see why Sinotruk Jinan TruckLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Sinotruk Jinan TruckLtd'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.

As we suspected, our examination of Sinotruk Jinan TruckLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Sinotruk Jinan TruckLtd that you need to be mindful of.

You might be able to find a better investment than Sinotruk Jinan TruckLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.