China Animal Husbandry Industry Co., Ltd.'s (SHSE:600195) Price Is Right But Growth Is Lacking

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider China Animal Husbandry Industry Co., Ltd. (SHSE:600195) as an attractive investment with its 18.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for China Animal Husbandry Industry as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for China Animal Husbandry Industry

Want the full picture on analyst estimates for the company? Then our free report on China Animal Husbandry Industry will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like China Animal Husbandry Industry's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. The latest three year period has also seen a 18% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the nine analysts following the company. That's shaping up to be materially lower than the 40% growth forecast for the broader market.

With this information, we can see why China Animal Husbandry Industry is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From China Animal Husbandry Industry's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of China Animal Husbandry Industry's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for China Animal Husbandry Industry that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.