The Market Doesn't Like What It Sees From AVIC Jonhon Optronic Technology Co.,Ltd.'s (SZSE:002179) Earnings Yet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider AVIC Jonhon Optronic Technology Co.,Ltd. (SZSE:002179) as an attractive investment with its 25x 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 advantageous for AVIC Jonhon Optronic TechnologyLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 AVIC Jonhon Optronic TechnologyLtd

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

Is There Any Growth For AVIC Jonhon Optronic TechnologyLtd?

AVIC Jonhon Optronic TechnologyLtd'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 decent 5.1% gain to the company's bottom line. Pleasingly, EPS has also lifted 50% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 19% per annum as estimated by the ten analysts watching the company. With the market predicted to deliver 25% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that AVIC Jonhon Optronic TechnologyLtd'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 Key Takeaway

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.

We've established that AVIC Jonhon Optronic TechnologyLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

You always need to take note of risks, for example - AVIC Jonhon Optronic TechnologyLtd has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than AVIC Jonhon Optronic TechnologyLtd. 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