Investors Aren't Entirely Convinced By Tianjin Yiyi Hygiene Products Co.,Ltd's (SZSE:001206) Earnings

With a price-to-earnings (or "P/E") ratio of 15.3x Tianjin Yiyi Hygiene Products Co.,Ltd (SZSE:001206) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 51x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Tianjin Yiyi Hygiene ProductsLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 out of favour.

See our latest analysis for Tianjin Yiyi Hygiene ProductsLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tianjin Yiyi Hygiene ProductsLtd.

Is There Any Growth For Tianjin Yiyi Hygiene ProductsLtd?

There's an inherent assumption that a company should underperform the market for P/E ratios like Tianjin Yiyi Hygiene ProductsLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 17% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 19% per annum during the coming three years according to the three analysts following the company. That's shaping up to be similar to the 19% each year growth forecast for the broader market.

With this information, we find it odd that Tianjin Yiyi Hygiene ProductsLtd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

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 Tianjin Yiyi Hygiene ProductsLtd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Tianjin Yiyi Hygiene ProductsLtd you should be aware of.

If you're unsure about the strength of Tianjin Yiyi Hygiene ProductsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.