There Is A Reason Shenzhen Topband Co., Ltd.'s (SZSE:002139) Price Is Undemanding

Shenzhen Topband Co., Ltd.'s (SZSE:002139) price-to-earnings (or "P/E") ratio of 25.5x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 35x and even P/E's above 67x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shenzhen Topband has been doing quite well of late. 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.

View our latest analysis for Shenzhen Topband

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

Is There Any Growth For Shenzhen Topband?

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

Retrospectively, the last year delivered an exceptional 38% gain to the company's bottom line. Still, incredibly EPS has fallen 12% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 28% as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

With this information, we can see why Shenzhen Topband 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 Topband'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.

As we suspected, our examination of Shenzhen Topband'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Shenzhen Topband with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Shenzhen Topband, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.