Market Still Lacking Some Conviction On Rayhoo Motor Dies Co.,Ltd. (SZSE:002997)
When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Rayhoo Motor Dies Co.,Ltd. (SZSE:002997) as an attractive investment with its 24.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Rayhoo Motor DiesLtd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Rayhoo Motor DiesLtd
How Is Rayhoo Motor DiesLtd's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Rayhoo Motor DiesLtd'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 terrific increase of 45%. The latest three year period has also seen an excellent 94% 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.
Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 35% 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 Rayhoo Motor DiesLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
The Bottom Line On Rayhoo Motor DiesLtd's P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of Rayhoo Motor DiesLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. 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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
And what about other risks? Every company has them, and we've spotted 3 warning signs for Rayhoo Motor DiesLtd (of which 1 makes us a bit uncomfortable!) you should know about.
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.
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About SZSE:002997
Rayhoo Motor DiesLtd
Designs, develops, manufactures, and sells stamping dies and auto welding lines in China and internationally.
High growth potential with excellent balance sheet.
