Investors Aren't Buying Xiangyang BOYA Precision Industrial Equipments Co., Ltd's (SZSE:300971) Earnings

With a price-to-earnings (or "P/E") ratio of 25.3x Xiangyang BOYA Precision Industrial Equipments Co., Ltd (SZSE:300971) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Xiangyang BOYA Precision Industrial Equipments over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Xiangyang BOYA Precision Industrial Equipments

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Xiangyang BOYA Precision Industrial Equipments' earnings, revenue and cash flow.

How Is Xiangyang BOYA Precision Industrial Equipments' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Xiangyang BOYA Precision Industrial Equipments' is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.5%. This means it has also seen a slide in earnings over the longer-term as EPS is down 53% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 36% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Xiangyang BOYA Precision Industrial Equipments' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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.

We've established that Xiangyang BOYA Precision Industrial Equipments maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Xiangyang BOYA Precision Industrial Equipments (including 1 which is potentially serious).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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