Shenzhen Huaqiang Industry Co., Ltd.'s (SZSE:000062) Price Is Right But Growth Is Lacking

With a price-to-earnings (or "P/E") ratio of 26.6x Shenzhen Huaqiang Industry Co., Ltd. (SZSE:000062) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 31x and even P/E's higher than 57x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Shenzhen Huaqiang Industry's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Shenzhen Huaqiang Industry

Although there are no analyst estimates available for Shenzhen Huaqiang Industry, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Shenzhen Huaqiang Industry?

Shenzhen Huaqiang Industry's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 46% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 37% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Shenzhen Huaqiang Industry's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Shenzhen Huaqiang Industry's P/E

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.

We've established that Shenzhen Huaqiang Industry maintains its low P/E on the weakness of its sliding earnings over the medium-term, 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. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Shenzhen Huaqiang Industry is showing 3 warning signs in our investment analysis, and 1 of those is a bit concerning.

Of course, you might also be able to find a better stock than Shenzhen Huaqiang Industry. 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