Yanpai Filtration Technology Co., Ltd.'s (SZSE:301081) Prospects Need A Boost To Lift Shares

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Yanpai Filtration Technology Co., Ltd. (SZSE:301081) as an attractive investment with its 20.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Yanpai Filtration Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out our latest analysis for Yanpai Filtration Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Yanpai Filtration Technology will help you shine a light on its historical performance.

Is There Any Growth For Yanpai Filtration Technology?

In order to justify its P/E ratio, Yanpai Filtration Technology would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 30% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's an unpleasant look.

With this information, we are not surprised that Yanpai Filtration Technology is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Yanpai Filtration Technology revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Yanpai Filtration Technology (1 is potentially serious!) that you should be aware of.

Of course, you might also be able to find a better stock than Yanpai Filtration Technology. 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.