It's Down 26% But Shenzhen Sinexcel Electric Co.,Ltd. (SZSE:300693) Could Be Riskier Than It Looks

To the annoyance of some shareholders, Shenzhen Sinexcel Electric Co.,Ltd. (SZSE:300693) shares are down a considerable 26% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.

In spite of the heavy fall in price, Shenzhen Sinexcel ElectricLtd's price-to-earnings (or "P/E") ratio of 14.6x 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 29x and even P/E's above 54x 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.

Shenzhen Sinexcel ElectricLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Shenzhen Sinexcel ElectricLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Sinexcel ElectricLtd.

How Is Shenzhen Sinexcel ElectricLtd's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. The latest three year period has also seen an excellent 233% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 27% per annum during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 25% per year growth forecast for the broader market.

With this information, we find it odd that Shenzhen Sinexcel ElectricLtd is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Shenzhen Sinexcel ElectricLtd's recently weak share price has pulled its P/E below most other companies. 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.

Our examination of Shenzhen Sinexcel ElectricLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Shenzhen Sinexcel ElectricLtd (including 1 which can't be ignored).

You might be able to find a better investment than Shenzhen Sinexcel ElectricLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com