There Is A Reason Zhejiang Crystal-Optech Co., Ltd's (SZSE:002273) Price Is Undemanding

Zhejiang Crystal-Optech Co., Ltd's (SZSE:002273) price-to-earnings (or "P/E") ratio of 32x 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 39x and even P/E's above 77x are quite common. 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 Zhejiang Crystal-Optech 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 Zhejiang Crystal-Optech

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

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhejiang Crystal-Optech's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 97% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 90% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 17% over the next year. Meanwhile, the rest of the market is forecast to expand by 37%, which is noticeably more attractive.

With this information, we can see why Zhejiang Crystal-Optech is trading at a P/E lower than the market. 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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Zhejiang Crystal-Optech 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.

Plus, you should also learn about this 1 warning sign we've spotted with Zhejiang Crystal-Optech.

You might be able to find a better investment than Zhejiang Crystal-Optech. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.