Winall Hi-tech Seed Co., Ltd.'s (SZSE:300087) Price Is Out Of Tune With Earnings

There wouldn't be many who think Winall Hi-tech Seed Co., Ltd.'s (SZSE:300087) price-to-earnings (or "P/E") ratio of 28.7x is worth a mention when the median P/E in China is similar at about 31x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Winall Hi-tech Seed certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient 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 not quite in favour.

See our latest analysis for Winall Hi-tech Seed

Want the full picture on analyst estimates for the company? Then our free report on Winall Hi-tech Seed will help you uncover what's on the horizon.

Is There Some Growth For Winall Hi-tech Seed?

In order to justify its P/E ratio, Winall Hi-tech Seed would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 16%. The latest three year period has also seen an excellent 90% 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 three analysts covering the company suggest earnings should grow by 21% over the next year. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we find it interesting that Winall Hi-tech Seed is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Winall Hi-tech Seed'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.

Our examination of Winall Hi-tech Seed's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Winall Hi-tech Seed is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than Winall Hi-tech Seed. 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).

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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.