Getting In Cheap On Dencare (Chongqing) Oral Care Co., Ltd. (SZSE:001328) Is Unlikely

There wouldn't be many who think Dencare (Chongqing) Oral Care Co., Ltd.'s (SZSE:001328) price-to-earnings (or "P/E") ratio of 36x is worth a mention when the median P/E in China is similar at about 36x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

The recently shrinking earnings for Dencare (Chongqing) Oral Care have been in line with the market. The P/E is probably moderate because investors think the company's earnings trend will continue to follow the rest of the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. At the very least, you'd be hoping that earnings don't accelerate downwards if your plan is to pick up some stock while it's not in favour.

Check out our latest analysis for Dencare (Chongqing) Oral Care

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dencare (Chongqing) Oral Care.

How Is Dencare (Chongqing) Oral Care's Growth Trending?

The only time you'd be comfortable seeing a P/E like Dencare (Chongqing) Oral Care's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 2.1% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 4.3% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 19% over the next year. That's shaping up to be materially lower than the 39% growth forecast for the broader market.

In light of this, it's curious that Dencare (Chongqing) Oral Care's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Dencare (Chongqing) Oral Care'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.

We've established that Dencare (Chongqing) Oral Care currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Dencare (Chongqing) Oral Care that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.