Investors Continue Waiting On Sidelines For Hubei Xingfa Chemicals Group Co., Ltd. (SHSE:600141)

With a price-to-earnings (or "P/E") ratio of 15.4x Hubei Xingfa Chemicals Group Co., Ltd. (SHSE:600141) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 62x 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 so limited.

Hubei Xingfa Chemicals Group 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. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Hubei Xingfa Chemicals Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hubei Xingfa Chemicals Group.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Hubei Xingfa Chemicals Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 45%. This means it has also seen a slide in earnings over the longer-term as EPS is down 8.9% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 18% each year over the next three years. That's shaping up to be similar to the 18% per year growth forecast for the broader market.

In light of this, it's peculiar that Hubei Xingfa Chemicals Group's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Hubei Xingfa Chemicals Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Before you take the next step, you should know about the 3 warning signs for Hubei Xingfa Chemicals Group (1 can't be ignored!) that we have uncovered.

You might be able to find a better investment than Hubei Xingfa Chemicals Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.