Bear Electric Appliance Co.,Ltd.'s (SZSE:002959) Share Price Is Matching Sentiment Around Its Earnings

With a price-to-earnings (or "P/E") ratio of 18.2x Bear Electric Appliance Co.,Ltd. (SZSE:002959) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 64x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Bear Electric ApplianceLtd 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.

Check out our latest analysis for Bear Electric ApplianceLtd

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

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Bear Electric ApplianceLtd'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 23%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 12% each year over the next three years. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Bear Electric ApplianceLtd'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 Bottom Line On Bear Electric ApplianceLtd's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Bear Electric ApplianceLtd 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Bear Electric ApplianceLtd (of which 1 shouldn't be ignored!) you should know about.

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.