Beijing Ultrapower Software Co., Ltd.'s (SZSE:300002) Share Price Is Matching Sentiment Around Its Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider Beijing Ultrapower Software Co., Ltd. (SZSE:300002) as an attractive investment with its 15.8x 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 limited.

Recent times have been pleasing for Beijing Ultrapower Software as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

Check out our latest analysis for Beijing Ultrapower Software

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing Ultrapower Software.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Beijing Ultrapower Software would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 54%. The latest three year period has also seen an excellent 163% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 9.3% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is noticeably more attractive.

In light of this, it's understandable that Beijing Ultrapower Software'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

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 Beijing Ultrapower Software's analyst forecasts revealed that its inferior earnings outlook 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.

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

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.