Market Cool On China Tianying Inc.'s (SZSE:000035) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider China Tianying Inc. (SZSE:000035) as an attractive investment with its 20x 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 limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, China Tianying has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for China Tianying

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Tianying.

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

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

Retrospectively, the last year delivered an exceptional 226% gain to the company's bottom line. Still, incredibly EPS has fallen 19% in total from three years ago, which is quite disappointing. 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 40% per annum during the coming three years according to the only analyst following the company. That's shaping up to be materially higher than the 19% per year growth forecast for the broader market.

In light of this, it's peculiar that China Tianying's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On China Tianying's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that China Tianying 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 1 warning sign for China Tianying that you need to take into consideration.

Of course, you might also be able to find a better stock than China Tianying. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.