Lacklustre Performance Is Driving Aerospace Intelligent Manufacturing Technology Co., Ltd.'s (SZSE:300446) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider Aerospace Intelligent Manufacturing Technology Co., Ltd. (SZSE:300446) as an attractive investment with its 19.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Aerospace Intelligent Manufacturing Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Aerospace Intelligent Manufacturing Technology

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Aerospace Intelligent Manufacturing Technology would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 95% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Aerospace Intelligent Manufacturing Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

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.

As we suspected, our examination of Aerospace Intelligent Manufacturing Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Aerospace Intelligent Manufacturing Technology (1 makes us a bit uncomfortable!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Aerospace Intelligent Manufacturing Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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