Yongxing Special Materials Technology Co.,Ltd's (SZSE:002756) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Yongxing Special Materials Technology Co.,Ltd (SZSE:002756) as a highly attractive investment with its 6.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Yongxing Special 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.

Check out our latest analysis for Yongxing Special Materials TechnologyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yongxing Special Materials TechnologyLtd.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Yongxing Special Materials TechnologyLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 55%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 765% 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.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 8.1% per annum as estimated by the seven analysts watching the company. That's not great when the rest of the market is expected to grow by 25% each year.

In light of this, it's understandable that Yongxing Special Materials TechnologyLtd's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

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.

We've established that Yongxing Special Materials TechnologyLtd maintains its low P/E on the weakness of its forecast for sliding earnings, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 4 warning signs we've spotted with Yongxing Special Materials TechnologyLtd (including 2 which can't be ignored).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com