There Is A Reason Yangling Metron New Material Inc.'s (SZSE:300861) Price Is Undemanding

Yangling Metron New Material Inc.'s (SZSE:300861) price-to-earnings (or "P/E") ratio of 6.9x 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 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Yangling Metron New Material hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Yangling Metron New Material

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

Is There Any Growth For Yangling Metron New Material?

In order to justify its P/E ratio, Yangling Metron New Material would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 10%. Still, the latest three year period has seen an excellent 159% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest earnings growth is heading into negative territory, declining 11% each year over the next three years. With the market predicted to deliver 25% growth each year, that's a disappointing outcome.

With this information, we are not surprised that Yangling Metron New Material is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Yangling Metron New Material's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Yangling Metron New Material is showing 3 warning signs in our investment analysis, and 2 of those are potentially serious.

Of course, you might also be able to find a better stock than Yangling Metron New Material. 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