Earnings Working Against Tangshan Sanyou Chemical Industries Co.,Ltd's (SHSE:600409) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Tangshan Sanyou Chemical Industries Co.,Ltd (SHSE:600409) as an attractive investment with its 15.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Tangshan Sanyou Chemical IndustriesLtd has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Tangshan Sanyou Chemical IndustriesLtd

Keen to find out how analysts think Tangshan Sanyou Chemical IndustriesLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Tangshan Sanyou Chemical IndustriesLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 51% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 8.4% each year as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24% per year, which is noticeably more attractive.

In light of this, it's understandable that Tangshan Sanyou Chemical IndustriesLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Tangshan Sanyou Chemical IndustriesLtd's P/E?

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.

As we suspected, our examination of Tangshan Sanyou Chemical IndustriesLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Tangshan Sanyou Chemical IndustriesLtd that you need to be mindful of.

You might be able to find a better investment than Tangshan Sanyou Chemical IndustriesLtd. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com