Investors Holding Back On Wuxi Paike New Materials Technology Co.,Ltd. (SHSE:605123)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Wuxi Paike New Materials Technology Co.,Ltd. (SHSE:605123) as an attractive investment with its 15x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Wuxi Paike New Materials TechnologyLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Wuxi Paike New Materials TechnologyLtd

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How Is Wuxi Paike New Materials TechnologyLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Wuxi Paike New Materials TechnologyLtd's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 62% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 28% each year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 24% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Wuxi Paike New Materials TechnologyLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Wuxi Paike New Materials TechnologyLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 1 warning sign for Wuxi Paike New Materials TechnologyLtd that you need to take into consideration.

If these risks are making you reconsider your opinion on Wuxi Paike New Materials TechnologyLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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