Jiangsu Yuyue Medical Equipment & Supply Co., Ltd.'s (SZSE:002223) Share Price Is Matching Sentiment Around Its Earnings

Jiangsu Yuyue Medical Equipment & Supply Co., Ltd.'s (SZSE:002223) price-to-earnings (or "P/E") ratio of 21.3x 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 39x and even P/E's above 77x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Jiangsu Yuyue Medical Equipment & Supply has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. 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.

View our latest analysis for Jiangsu Yuyue Medical Equipment & Supply

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jiangsu Yuyue Medical Equipment & Supply.

Does Growth Match The Low P/E?

Jiangsu Yuyue Medical Equipment & Supply'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.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.1% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should generate growth of 32% as estimated by the ten analysts watching the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Jiangsu Yuyue Medical Equipment & Supply 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 Yuyue Medical Equipment & Supply's P/E

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.

As we suspected, our examination of Jiangsu Yuyue Medical Equipment & Supply'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Jiangsu Yuyue Medical Equipment & Supply you should know about.

Of course, you might also be able to find a better stock than Jiangsu Yuyue Medical Equipment & Supply. 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.