Earnings Working Against Guangdong Dongpeng Holdings Co.,Ltd.'s (SZSE:003012) Share Price

With a price-to-earnings (or "P/E") ratio of 8.8x Guangdong Dongpeng Holdings Co.,Ltd. (SZSE:003012) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 51x 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 so limited.

Recent times have been advantageous for Guangdong Dongpeng HoldingsLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Guangdong Dongpeng HoldingsLtd

Keen to find out how analysts think Guangdong Dongpeng HoldingsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Guangdong Dongpeng HoldingsLtd's Growth Trending?

Guangdong Dongpeng HoldingsLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 149%. However, this wasn't enough as the latest three year period has seen a very unpleasant 31% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 12% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 24% per year growth forecast for the broader market.

In light of this, it's understandable that Guangdong Dongpeng HoldingsLtd'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.

What We Can Learn From Guangdong Dongpeng HoldingsLtd's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Guangdong Dongpeng HoldingsLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Guangdong Dongpeng HoldingsLtd that you need to be mindful of.

If you're unsure about the strength of Guangdong Dongpeng HoldingsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.