A Piece Of The Puzzle Missing From Qingdao Hanhe Cable Co.,Ltd's (SZSE:002498) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Qingdao Hanhe Cable Co.,Ltd (SZSE:002498) as an attractive investment with its 16.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Qingdao Hanhe CableLtd has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Qingdao Hanhe CableLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Qingdao Hanhe CableLtd.

How Is Qingdao Hanhe CableLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Qingdao Hanhe CableLtd's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. This means it has also seen a slide in earnings over the longer-term as EPS is down 21% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 39% over the next year. Meanwhile, the rest of the market is forecast to expand by 38%, which is not materially different.

With this information, we find it odd that Qingdao Hanhe CableLtd 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 Key Takeaway

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.

We've established that Qingdao Hanhe CableLtd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - Qingdao Hanhe CableLtd has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Qingdao Hanhe CableLtd. 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.