Shareholders Should Be Pleased With Huaming Power Equipment Co.,Ltd's (SZSE:002270) Price

There wouldn't be many who think Huaming Power Equipment Co.,Ltd's (SZSE:002270) price-to-earnings (or "P/E") ratio of 27.1x is worth a mention when the median P/E in China is similar at about 27x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Huaming Power EquipmentLtd has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient 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 not quite in favour.

View our latest analysis for Huaming Power EquipmentLtd

Want the full picture on analyst estimates for the company? Then our free report on Huaming Power EquipmentLtd will help you uncover what's on the horizon.

Is There Some Growth For Huaming Power EquipmentLtd?

The only time you'd be comfortable seeing a P/E like Huaming Power EquipmentLtd's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. As a result, it also grew EPS by 28% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 18% per annum as estimated by the eight analysts watching the company. With the market predicted to deliver 20% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Huaming Power EquipmentLtd's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

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.

As we suspected, our examination of Huaming Power EquipmentLtd's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Huaming Power EquipmentLtd you should know about.

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.