Many Still Looking Away From Hengli Petrochemical Co.,Ltd. (SHSE:600346)

With a price-to-earnings (or "P/E") ratio of 17.4x Hengli Petrochemical Co.,Ltd. (SHSE:600346) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 38x and even P/E's higher than 73x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been pleasing for Hengli PetrochemicalLtd 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Hengli PetrochemicalLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hengli PetrochemicalLtd.

How Is Hengli PetrochemicalLtd's Growth Trending?

In order to justify its P/E ratio, Hengli PetrochemicalLtd would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 226% gain to the company's bottom line. Still, incredibly EPS has fallen 61% in total from three years ago, which is quite disappointing. 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 analysts covering the company suggest earnings should grow by 50% over the next year. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Hengli PetrochemicalLtd is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Hengli PetrochemicalLtd'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 Hengli PetrochemicalLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Hengli PetrochemicalLtd (1 is a bit unpleasant) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.