Sichuan Kexin Mechanical and Electrical Equipment Co.,Ltd's (SZSE:300092) Price Is Right But Growth Is Lacking After Shares Rocket 28%

Sichuan Kexin Mechanical and Electrical Equipment Co.,Ltd (SZSE:300092) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

In spite of the firm bounce in price, Sichuan Kexin Mechanical and Electrical EquipmentLtd's price-to-earnings (or "P/E") ratio of 21.6x might still 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 32x and even P/E's above 60x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Sichuan Kexin Mechanical and Electrical EquipmentLtd has been doing relatively well. 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.

View our latest analysis for Sichuan Kexin Mechanical and Electrical EquipmentLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sichuan Kexin Mechanical and Electrical EquipmentLtd.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Sichuan Kexin Mechanical and Electrical EquipmentLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 3.1%. Pleasingly, EPS has also lifted 56% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 29% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

In light of this, it's understandable that Sichuan Kexin Mechanical and Electrical EquipmentLtd'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.

What We Can Learn From Sichuan Kexin Mechanical and Electrical EquipmentLtd's P/E?

The latest share price surge wasn't enough to lift Sichuan Kexin Mechanical and Electrical EquipmentLtd's P/E close to the market median. 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 Sichuan Kexin Mechanical and Electrical EquipmentLtd'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.

Before you settle on your opinion, we've discovered 3 warning signs for Sichuan Kexin Mechanical and Electrical EquipmentLtd (1 can't be ignored!) that you should be aware of.

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.