Little Excitement Around Hainan Haide Capital Management Co., Ltd.'s (SZSE:000567) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Hainan Haide Capital Management Co., Ltd. (SZSE:000567) as a highly attractive investment with its 13.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Hainan Haide Capital Management certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Hainan Haide Capital Management

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hainan Haide Capital Management.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Hainan Haide Capital Management's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 20% gain to the company's bottom line. The latest three year period has also seen an excellent 546% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 6.1% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 25% per annum, which is noticeably more attractive.

In light of this, it's understandable that Hainan Haide Capital Management'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 Key Takeaway

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 Hainan Haide Capital Management 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Hainan Haide Capital Management (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

You might be able to find a better investment than Hainan Haide Capital Management. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com