Not Many Are Piling Into Qingdao Haier Biomedical Co.,Ltd (SHSE:688139) Just Yet

With a price-to-earnings (or "P/E") ratio of 27.7x Qingdao Haier Biomedical Co.,Ltd (SHSE:688139) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 64x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Qingdao Haier BiomedicalLtd 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. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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Is There Any Growth For Qingdao Haier BiomedicalLtd?

Qingdao Haier BiomedicalLtd'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.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 28%. This means it has also seen a slide in earnings over the longer-term as EPS is down 55% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 76% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 38% growth forecast for the broader market.

In light of this, it's peculiar that Qingdao Haier BiomedicalLtd's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Qingdao Haier BiomedicalLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 1 warning sign for Qingdao Haier BiomedicalLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on Qingdao Haier BiomedicalLtd, 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.