Why Investors Shouldn't Be Surprised By Xinxiang Richful Lube Additive Co.,Ltd.'s (SZSE:300910) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Xinxiang Richful Lube Additive Co.,Ltd. (SZSE:300910) as an attractive investment with its 16.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Xinxiang Richful Lube AdditiveLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Xinxiang Richful Lube AdditiveLtd

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How Is Xinxiang Richful Lube AdditiveLtd's Growth Trending?

In order to justify its P/E ratio, Xinxiang Richful Lube AdditiveLtd would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 29% last year. The latest three year period has also seen an excellent 157% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 4.9% per year as estimated by the dual analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 24% each year, which is noticeably more attractive.

In light of this, it's understandable that Xinxiang Richful Lube AdditiveLtd'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.

The Bottom Line On Xinxiang Richful Lube AdditiveLtd's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Xinxiang Richful Lube AdditiveLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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.

Before you take the next step, you should know about the 2 warning signs for Xinxiang Richful Lube AdditiveLtd (1 doesn't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on Xinxiang Richful Lube AdditiveLtd, 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