There Is A Reason China World Trade Center Co., Ltd.'s (SHSE:600007) Price Is Undemanding

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider China World Trade Center Co., Ltd. (SHSE:600007) as an attractive investment with its 17.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

China World Trade Center certainly has been doing a good job lately as it's been growing earnings more 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 China World Trade Center

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

How Is China World Trade Center's Growth Trending?

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

Retrospectively, the last year delivered a decent 8.9% gain to the company's bottom line. Pleasingly, EPS has also lifted 47% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 1.0% each year over the next three years. 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 China World Trade Center'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 Final Word

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.

As we suspected, our examination of China World Trade Center'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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for China World Trade Center with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than China World Trade Center. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com