Xilinmen Furniture Co.,Ltd's (SHSE:603008) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Those holding Xilinmen Furniture Co.,Ltd (SHSE:603008) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Although its price has surged higher, Xilinmen FurnitureLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.7x, since 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.

Xilinmen FurnitureLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Xilinmen FurnitureLtd

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

How Is Xilinmen FurnitureLtd's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Xilinmen FurnitureLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 87%. Still, incredibly EPS has fallen 6.6% 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.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

In light of this, it's understandable that Xilinmen FurnitureLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Xilinmen FurnitureLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Xilinmen FurnitureLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Xilinmen FurnitureLtd has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.