Market Cool On Aoshikang Technology Co., Ltd.'s (SZSE:002913) Earnings

With a price-to-earnings (or "P/E") ratio of 25.3x Aoshikang Technology Co., Ltd. (SZSE:002913) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. 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 haven't been advantageous for Aoshikang Technology as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Aoshikang Technology

Want the full picture on analyst estimates for the company? Then our free report on Aoshikang Technology will help you uncover what's on the horizon.

Is There Any Growth For Aoshikang Technology?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 7.0% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 155% over the next year. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Aoshikang Technology's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Aoshikang Technology's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Aoshikang Technology is showing 3 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Aoshikang Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.