Earnings Working Against CIMC Vehicles (Group) Co., Ltd.'s (SZSE:301039) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider CIMC Vehicles (Group) Co., Ltd. (SZSE:301039) as a highly attractive investment with its 7.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for CIMC Vehicles (Group) as its earnings have been rising faster 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for CIMC Vehicles (Group)

Keen to find out how analysts think CIMC Vehicles (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For CIMC Vehicles (Group)?

CIMC Vehicles (Group)'s P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 51% last year. The strong recent performance means it was also able to grow EPS by 77% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 4.5% per year as estimated by the three analysts watching the company. Meanwhile, the broader market is forecast to expand by 25% per annum, which paints a poor picture.

In light of this, it's understandable that CIMC Vehicles (Group)'s 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From CIMC Vehicles (Group)'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.

As we suspected, our examination of CIMC Vehicles (Group)'s analyst forecasts revealed that its outlook for shrinking earnings 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - CIMC Vehicles (Group) has 1 warning sign we think you should be aware of.

If you're unsure about the strength of CIMC Vehicles (Group)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

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