The Market Doesn't Like What It Sees From Anker Innovations Limited's (SZSE:300866) Earnings Yet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Anker Innovations Limited (SZSE:300866) as an attractive investment with its 23.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Anker Innovations has been doing relatively well. 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.

See our latest analysis for Anker Innovations

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

Is There Any Growth For Anker Innovations?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. The strong recent performance means it was also able to grow EPS by 69% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the nine 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 Anker Innovations' 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 Bottom Line On Anker Innovations' P/E

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.

We've established that Anker Innovations 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.

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

If you're unsure about the strength of Anker Innovations' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.