Investors Aren't Entirely Convinced By Dongguan Aohai Technology Co., Ltd.'s (SZSE:002993) Earnings

With a price-to-earnings (or "P/E") ratio of 20.2x Dongguan Aohai Technology Co., Ltd. (SZSE:002993) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 60x 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.

Dongguan Aohai Technology could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Dongguan Aohai Technology

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

Is There Any Growth For Dongguan Aohai Technology?

The only time you'd be truly comfortable seeing a P/E as low as Dongguan Aohai Technology's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 9.7% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 3.9% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 30% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 25% per year growth forecast for the broader market.

In light of this, it's peculiar that Dongguan Aohai Technology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Dongguan Aohai Technology's P/E

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.

Our examination of Dongguan Aohai 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. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Dongguan Aohai Technology that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.