Jiangsu Lihua Animal Husbandry Co., Ltd.'s (SZSE:300761) Prospects Need A Boost To Lift Shares

With a price-to-earnings (or "P/E") ratio of 26.1x Jiangsu Lihua Animal Husbandry Co., Ltd. (SZSE:300761) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Jiangsu Lihua Animal Husbandry 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. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Jiangsu Lihua Animal Husbandry

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Is There Any Growth For Jiangsu Lihua Animal Husbandry?

The only time you'd be truly comfortable seeing a P/E as low as Jiangsu Lihua Animal Husbandry's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 60% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 154% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 10% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is noticeably more attractive.

With this information, we can see why Jiangsu Lihua Animal Husbandry is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Jiangsu Lihua Animal Husbandry's P/E

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.

We've established that Jiangsu Lihua Animal Husbandry 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. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Jiangsu Lihua Animal Husbandry that you need to be mindful of.

If these risks are making you reconsider your opinion on Jiangsu Lihua Animal Husbandry, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.