There's No Escaping Midea Group Co., Ltd.'s (SZSE:000333) Muted Earnings

Midea Group Co., Ltd.'s (SZSE:000333) price-to-earnings (or "P/E") ratio of 13.9x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 31x and even P/E's above 56x are quite common. 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 Midea Group as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Midea Group

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

How Is Midea Group's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The solid recent performance means it was also able to grow EPS by 25% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 9.6% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 21% each year growth forecast for the broader market.

With this information, we can see why Midea Group is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Midea 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.

We've established that Midea Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Midea Group with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.