There Is A Reason Shenzhen Kingkey Smart Agriculture Times Co.,Ltd's (SZSE:000048) Price Is Undemanding

Shenzhen Kingkey Smart Agriculture Times Co.,Ltd's (SZSE:000048) price-to-earnings (or "P/E") ratio of 12.7x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Shenzhen Kingkey Smart Agriculture TimesLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Shenzhen Kingkey Smart Agriculture TimesLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shenzhen Kingkey Smart Agriculture TimesLtd.

How Is Shenzhen Kingkey Smart Agriculture TimesLtd's Growth Trending?

Shenzhen Kingkey Smart Agriculture TimesLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a frustrating 73% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 53% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the dual analysts watching the company. With the market predicted to deliver 24% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Shenzhen Kingkey Smart Agriculture TimesLtd 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 Shenzhen Kingkey Smart Agriculture TimesLtd's P/E?

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.

We've established that Shenzhen Kingkey Smart Agriculture TimesLtd 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Shenzhen Kingkey Smart Agriculture TimesLtd you should be aware of, and 2 of them are a bit unpleasant.

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.