Market Cool On Luoyang Xinqianglian Slewing Bearing Co., Ltd.'s (SZSE:300850) Earnings

Luoyang Xinqianglian Slewing Bearing Co., Ltd.'s (SZSE:300850) price-to-earnings (or "P/E") ratio of 27.9x might 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 59x 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.

While the market has experienced earnings growth lately, Luoyang Xinqianglian Slewing Bearing's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Luoyang Xinqianglian Slewing Bearing

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

Luoyang Xinqianglian Slewing Bearing's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 28%. This means it has also seen a slide in earnings over the longer-term as EPS is down 28% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 46% over the next year. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Luoyang Xinqianglian Slewing Bearing 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.

What We Can Learn From Luoyang Xinqianglian Slewing Bearing's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Luoyang Xinqianglian Slewing Bearing currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

It is also worth noting that we have found 4 warning signs for Luoyang Xinqianglian Slewing Bearing (2 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Luoyang Xinqianglian Slewing Bearing'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.