ShenZhen Woer Heat-Shrinkable Material Co.,Ltd. (SZSE:002130) Doing What It Can To Lift Shares

ShenZhen Woer Heat-Shrinkable Material Co.,Ltd.'s (SZSE:002130) price-to-earnings (or "P/E") ratio of 31x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 40x and even P/E's above 77x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, ShenZhen Woer Heat-Shrinkable MaterialLtd has been doing quite well of late. 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.

Check out 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.

Is There Any Growth For ShenZhen Woer Heat-Shrinkable MaterialLtd?

The only time you'd be truly comfortable seeing a P/E as low as ShenZhen Woer Heat-Shrinkable MaterialLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. The latest three year period has also seen an excellent 57% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 42% over the next year. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From ShenZhen Woer Heat-Shrinkable MaterialLtd's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for ShenZhen Woer Heat-Shrinkable MaterialLtd that you need to be mindful of.

If you're unsure about the strength of ShenZhen Woer Heat-Shrinkable MaterialLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.