Sentiment Still Eluding Xiangtan Electrochemical Scientific Co.,Ltd (SZSE:002125)

With a price-to-earnings (or "P/E") ratio of 19.2x Xiangtan Electrochemical Scientific Co.,Ltd (SZSE:002125) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 74x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen firmly for Xiangtan Electrochemical ScientificLtd recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Xiangtan Electrochemical ScientificLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Xiangtan Electrochemical ScientificLtd's earnings, revenue and cash flow.

How Is Xiangtan Electrochemical ScientificLtd's Growth Trending?

Xiangtan Electrochemical ScientificLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. Pleasingly, EPS has also lifted 228% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Xiangtan Electrochemical ScientificLtd's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Xiangtan Electrochemical ScientificLtd's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Xiangtan Electrochemical ScientificLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Xiangtan Electrochemical ScientificLtd 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.