Investors Don't See Light At End Of Shandong Sunpaper Co., Ltd.'s (SZSE:002078) Tunnel

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Shandong Sunpaper Co., Ltd. (SZSE:002078) as a highly attractive investment with its 10.4x P/E ratio. 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.

Shandong Sunpaper certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

See our latest analysis for Shandong Sunpaper

Keen to find out how analysts think Shandong Sunpaper'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?

Shandong Sunpaper's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 26%. EPS has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 10.0% per year during the coming three years according to the analysts following the company. With the market predicted to deliver 24% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Shandong Sunpaper is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 Shandong Sunpaper maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shandong Sunpaper you should know about.

If these risks are making you reconsider your opinion on Shandong Sunpaper, 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.