Hefei Meyer Optoelectronic Technology Inc.'s (SZSE:002690) Price Is Right But Growth Is Lacking

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Hefei Meyer Optoelectronic Technology Inc. (SZSE:002690) as an attractive investment with its 20.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Hefei Meyer Optoelectronic Technology 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 Hefei Meyer Optoelectronic Technology

Want the full picture on analyst estimates for the company? Then our free report on Hefei Meyer Optoelectronic Technology will help you uncover what's on the horizon.

How Is Hefei Meyer Optoelectronic Technology's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Hefei Meyer Optoelectronic Technology's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 17% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 12% as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

With this information, we can see why Hefei Meyer Optoelectronic Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Hefei Meyer Optoelectronic Technology'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.

As we suspected, our examination of Hefei Meyer Optoelectronic Technology'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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Hefei Meyer Optoelectronic Technology that you should be aware of.

Of course, you might also be able to find a better stock than Hefei Meyer Optoelectronic Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.