Guangdong Lingxiao Pump Industry Co.,Ltd.'s (SZSE:002884) Shares Lagging The Market But So Is The Business

Guangdong Lingxiao Pump Industry Co.,Ltd.'s (SZSE:002884) price-to-earnings (or "P/E") ratio of 17.2x 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 31x and even P/E's above 57x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

There hasn't been much to differentiate Guangdong Lingxiao Pump IndustryLtd's and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

View our latest analysis for Guangdong Lingxiao Pump IndustryLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangdong Lingxiao Pump IndustryLtd.

How Is Guangdong Lingxiao Pump IndustryLtd's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 2.6%. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 25% each year growth forecast for the broader market.

In light of this, it's understandable that Guangdong Lingxiao Pump IndustryLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

We've established that Guangdong Lingxiao Pump IndustryLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Guangdong Lingxiao Pump IndustryLtd you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.