Why Investors Shouldn't Be Surprised By Shenzhen Yinghe Technology Co., Ltd's (SZSE:300457) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Shenzhen Yinghe Technology Co., Ltd (SZSE:300457) as an attractive investment with its 16.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Shenzhen Yinghe Technology certainly has been doing a good job lately as it's been growing earnings more 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 Shenzhen Yinghe Technology

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

How Is Shenzhen Yinghe Technology's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. The latest three year period has also seen an excellent 180% 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 five analysts covering the company suggest earnings should grow by 23% over the next year. With the market predicted to deliver 39% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Shenzhen Yinghe 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 Shenzhen Yinghe Technology's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Shenzhen Yinghe Technology maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Shenzhen Yinghe Technology that you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Yinghe Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.