China Merchants Shekou Industrial Zone Holdings Co., Ltd.'s (SZSE:001979) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider China Merchants Shekou Industrial Zone Holdings Co., Ltd. (SZSE:001979) as a highly attractive investment with its 13.1x 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 so limited.

Recent times have been advantageous for China Merchants Shekou Industrial Zone Holdings as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for China Merchants Shekou Industrial Zone Holdings

Keen to find out how analysts think China Merchants Shekou Industrial Zone Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For China Merchants Shekou Industrial Zone Holdings?

There's an inherent assumption that a company should far underperform the market for P/E ratios like China Merchants Shekou Industrial Zone Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 223%. Still, incredibly EPS has fallen 58% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 12% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 24% per annum, which is noticeably more attractive.

With this information, we can see why China Merchants Shekou Industrial Zone Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From China Merchants Shekou Industrial Zone Holdings' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of China Merchants Shekou Industrial Zone Holdings' 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.

It is also worth noting that we have found 3 warning signs for China Merchants Shekou Industrial Zone Holdings (1 is a bit unpleasant!) that you need to take into consideration.

Of course, you might also be able to find a better stock than China Merchants Shekou Industrial Zone Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.