Insufficient Growth At Zhejiang Hailide New Material Co.,Ltd (SZSE:002206) Hampers Share Price

Zhejiang Hailide New Material Co.,Ltd's (SZSE:002206) price-to-earnings (or "P/E") ratio of 12.2x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 58x are quite common. 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.

Zhejiang Hailide New MaterialLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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.

Check out our latest analysis for Zhejiang Hailide New MaterialLtd

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Hailide New MaterialLtd will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Zhejiang Hailide New MaterialLtd would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 13% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 15% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Zhejiang Hailide New MaterialLtd 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 Bottom Line On Zhejiang Hailide New MaterialLtd'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.

As we suspected, our examination of Zhejiang Hailide New MaterialLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Zhejiang Hailide New MaterialLtd that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.