The Market Doesn't Like What It Sees From Himile Mechanical Science and Technology (Shandong) Co., Ltd's (SZSE:002595) Earnings Yet

With a price-to-earnings (or "P/E") ratio of 18x Himile Mechanical Science and Technology (Shandong) Co., Ltd (SZSE:002595) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 57x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Himile Mechanical Science and Technology (Shandong) has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Himile Mechanical Science and Technology (Shandong)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Himile Mechanical Science and Technology (Shandong).

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Himile Mechanical Science and Technology (Shandong) would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 40% gain to the company's bottom line. The latest three year period has also seen an excellent 49% 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.

Looking ahead now, EPS is anticipated to climb by 8.1% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 41% growth forecast for the broader market.

In light of this, it's understandable that Himile Mechanical Science and Technology (Shandong)'s P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Himile Mechanical Science and Technology (Shandong)'s P/E

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.

As we suspected, our examination of Himile Mechanical Science and Technology (Shandong)'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Himile Mechanical Science and Technology (Shandong).

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.