Lacklustre Performance Is Driving Bear Electric Appliance Co.,Ltd.'s (SZSE:002959) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Bear Electric Appliance Co.,Ltd. (SZSE:002959) as an attractive investment with its 18.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Bear Electric ApplianceLtd has been doing quite well of late. 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 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.

Check out our latest analysis for Bear Electric ApplianceLtd

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How Is Bear Electric ApplianceLtd's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 37%. EPS has also lifted 9.9% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 15% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Bear Electric ApplianceLtd 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 Key Takeaway

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.

As we suspected, our examination of Bear Electric ApplianceLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Bear Electric ApplianceLtd you should be aware of, and 1 of them doesn't sit too well with us.

If these risks are making you reconsider your opinion on Bear Electric ApplianceLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.