Not Many Are Piling Into ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) Stock Yet As It Plummets 28%

The ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) share price has fared very poorly over the last month, falling by a substantial 28%. Looking at the bigger picture, even after this poor month the stock is up 56% in the last year.

Although its price has dipped substantially, ShenZhen Woer Heat-Shrinkable MaterialLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.4x, since almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 50x are not unusual. 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 pleasing for ShenZhen Woer Heat-Shrinkable MaterialLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for ShenZhen Woer Heat-Shrinkable MaterialLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ShenZhen Woer Heat-Shrinkable MaterialLtd.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, ShenZhen Woer Heat-Shrinkable MaterialLtd would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. Pleasingly, EPS has also lifted 48% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the lone analyst watching the company. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

With this information, we find it odd that ShenZhen Woer Heat-Shrinkable MaterialLtd is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

ShenZhen Woer Heat-Shrinkable MaterialLtd's recently weak share price has pulled its P/E below most other companies. 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.

Our examination of ShenZhen Woer Heat-Shrinkable MaterialLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for ShenZhen Woer Heat-Shrinkable MaterialLtd (1 can't be ignored) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.