Market Cool On Shenzhen Senior Technology Material Co., Ltd.'s (SZSE:300568) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Shenzhen Senior Technology Material Co., Ltd. (SZSE:300568) as an attractive investment with its 28.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Shenzhen Senior Technology Material's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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 Shenzhen Senior Technology Material

Want the full picture on analyst estimates for the company? Then our free report on Shenzhen Senior Technology Material will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shenzhen Senior Technology Material's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. Even so, admirably EPS has lifted 135% in aggregate from three years ago, notwithstanding the last 12 months. 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 generate growth of 40% per year as estimated by the eleven analysts watching the company. That's shaping up to be materially higher than the 25% per year growth forecast for the broader market.

With this information, we find it odd that Shenzhen Senior Technology Material is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Shenzhen Senior Technology Material'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.

We've established that Shenzhen Senior Technology Material currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 4 warning signs we've spotted with Shenzhen Senior Technology Material (including 1 which is a bit unpleasant).

Of course, you might also be able to find a better stock than Shenzhen Senior Technology Material. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.