Lacklustre Performance Is Driving Hualan Biological Engineering Inc.'s (SZSE:002007) Low P/E

With a price-to-earnings (or "P/E") ratio of 26.4x Hualan Biological Engineering Inc. (SZSE:002007) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 61x are not unusual. 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 Hualan Biological Engineering 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.

See our latest analysis for Hualan Biological Engineering

Keen to find out how analysts think Hualan Biological Engineering's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Hualan Biological Engineering?

The only time you'd be truly comfortable seeing a P/E as low as Hualan Biological Engineering's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 15% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 17% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 26% per annum, which is noticeably more attractive.

With this information, we can see why Hualan Biological Engineering 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.

The Bottom Line On Hualan Biological Engineering's P/E

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.

As we suspected, our examination of Hualan Biological Engineering'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.

You always need to take note of risks, for example - Hualan Biological Engineering has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.