Guangdong Haid Group Co., Limited (SZSE:002311) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Guangdong Haid Group Co., Limited (SZSE:002311) as an attractive investment with its 23x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Guangdong Haid Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Guangdong Haid Group

Want the full picture on analyst estimates for the company? Then our free report on Guangdong Haid Group will help you uncover what's on the horizon.

How Is Guangdong Haid Group's Growth Trending?

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

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 5.9% overall rise in EPS. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 21% per annum over the next three years. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Guangdong Haid Group'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 Guangdong Haid Group's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Guangdong Haid Group'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 Guangdong Haid Group you should be aware of.

Of course, you might also be able to find a better stock than Guangdong Haid Group. 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.

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