Earnings Working Against Hangzhou Oxygen Plant Group Co.,Ltd.'s (SZSE:002430) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 37x, you may consider Hangzhou Oxygen Plant Group Co.,Ltd. (SZSE:002430) as an attractive investment with its 19.9x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Hangzhou Oxygen Plant GroupLtd has been doing quite well of late. 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 Hangzhou Oxygen Plant GroupLtd

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

The only time you'd be truly comfortable seeing a P/E as low as Hangzhou Oxygen Plant GroupLtd's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 29%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 18% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 24% over the next year. With the market predicted to deliver 38% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Hangzhou Oxygen Plant GroupLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Hangzhou Oxygen Plant GroupLtd's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Hangzhou Oxygen Plant GroupLtd'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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Hangzhou Oxygen Plant GroupLtd with six simple checks.

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.