Wuxi Xinhongye Wire & Cable Co., Ltd.'s (SZSE:301310) Shares Not Telling The Full Story

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Wuxi Xinhongye Wire & Cable Co., Ltd. (SZSE:301310) as an attractive investment with its 23.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Wuxi Xinhongye Wire & Cable has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Wuxi Xinhongye Wire & Cable

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wuxi Xinhongye Wire & Cable.

Is There Any Growth For Wuxi Xinhongye Wire & Cable?

The only time you'd be truly comfortable seeing a P/E as low as Wuxi Xinhongye Wire & Cable's 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 29%. This means it has also seen a slide in earnings over the longer-term as EPS is down 1.3% 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.

Looking ahead now, EPS is anticipated to climb by 98% during the coming year according to the sole analyst following 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 Wuxi Xinhongye Wire & Cable'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 Final Word

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.

We've established that Wuxi Xinhongye Wire & Cable 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 2 warning signs for Wuxi Xinhongye Wire & Cable (1 shouldn't be ignored!) that you need to take into consideration.

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.

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.