Qianhe Condiment and Food Co., Ltd.'s (SHSE:603027) Earnings Are Not Doing Enough For Some Investors

Qianhe Condiment and Food Co., Ltd.'s (SHSE:603027) price-to-earnings (or "P/E") ratio of 25.9x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 39x and even P/E's above 76x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Qianhe Condiment and Food 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. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Qianhe Condiment and Food

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Qianhe Condiment and Food.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Qianhe Condiment and Food'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 13%. Even so, admirably EPS has lifted 306% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 12% during the coming year according to the nine analysts following the company. That's shaping up to be materially lower than the 37% growth forecast for the broader market.

In light of this, it's understandable that Qianhe Condiment and Food'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.

What We Can Learn From Qianhe Condiment and Food's P/E?

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 Qianhe Condiment and Food'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. It's hard to see the share price rising strongly in the near future under these circumstances.

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

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.