Investors Interested In Hubei Xiangyuan New Material Technology Inc.'s (SZSE:300980) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Hubei Xiangyuan New Material Technology Inc. (SZSE:300980) as a stock to potentially avoid with its 39x 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 as high as it is.

Hubei Xiangyuan New Material Technology could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, 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 Hubei Xiangyuan New Material Technology

Keen to find out how analysts think Hubei Xiangyuan New Material Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Hubei Xiangyuan New Material Technology?

In order to justify its P/E ratio, Hubei Xiangyuan New Material Technology would need to produce impressive growth in excess of 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 5.1%. This means it has also seen a slide in earnings over the longer-term as EPS is down 64% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 118% over the next year. With the market only predicted to deliver 36%, the company is positioned for a stronger earnings result.

With this information, we can see why Hubei Xiangyuan New Material Technology is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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 Hubei Xiangyuan New Material Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Hubei Xiangyuan New Material Technology (2 shouldn't be ignored!) that you need to take into consideration.

You might be able to find a better investment than Hubei Xiangyuan New Material Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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