Subdued Growth No Barrier To Guangdong Tianhe Agricultural Means of Production Co., Ltd.'s (SZSE:002999) Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 29x, you may consider Guangdong Tianhe Agricultural Means of Production Co., Ltd. (SZSE:002999) as a stock to potentially avoid with its 33.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For example, consider that Guangdong Tianhe Agricultural Means of Production's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Guangdong Tianhe Agricultural Means of Production

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Guangdong Tianhe Agricultural Means of Production will help you shine a light on its historical performance.

Is There Enough Growth For Guangdong Tianhe Agricultural Means of Production?

The only time you'd be truly comfortable seeing a P/E as high as Guangdong Tianhe Agricultural Means of Production's is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 19%. As a result, earnings from three years ago have also fallen 25% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's an unpleasant look.

With this information, we find it concerning that Guangdong Tianhe Agricultural Means of Production is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Guangdong Tianhe Agricultural Means of Production's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Guangdong Tianhe Agricultural Means of Production revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Guangdong Tianhe Agricultural Means of Production is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

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.