Take Care Before Diving Into The Deep End On CIMC Vehicles (Group) Co., Ltd. (SZSE:301039)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider CIMC Vehicles (Group) Co., Ltd. (SZSE:301039) as a highly attractive investment with its 16.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times haven't been advantageous for CIMC Vehicles (Group) as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for CIMC Vehicles (Group)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CIMC Vehicles (Group).

How Is CIMC Vehicles (Group)'s Growth Trending?

In order to justify its P/E ratio, CIMC Vehicles (Group) would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 61% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 6.0% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 62% as estimated by the five analysts watching the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that CIMC Vehicles (Group)'s P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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.

Our examination of CIMC Vehicles (Group)'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. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CIMC Vehicles (Group) you should know about.

If these risks are making you reconsider your opinion on CIMC Vehicles (Group), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.