XIANGPIAOPIAO Food Co.,Ltd's (SHSE:603711) Prospects Need A Boost To Lift Shares

XIANGPIAOPIAO Food Co.,Ltd's (SHSE:603711) price-to-earnings (or "P/E") ratio of 18.9x 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 29x and even P/E's above 53x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

XIANGPIAOPIAO FoodLtd 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 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.

See our latest analysis for XIANGPIAOPIAO FoodLtd

Keen to find out how analysts think XIANGPIAOPIAO FoodLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

XIANGPIAOPIAO FoodLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 38% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 14% per annum over the next three years. That's shaping up to be materially lower than the 25% per annum growth forecast for the broader market.

In light of this, it's understandable that XIANGPIAOPIAO FoodLtd'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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of XIANGPIAOPIAO FoodLtd'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.

You should always think about risks. Case in point, we've spotted 1 warning sign for XIANGPIAOPIAO FoodLtd you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.

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