The Market Doesn't Like What It Sees From Rizhao Port Co.,Ltd's (SHSE:600017) Earnings Yet

With a price-to-earnings (or "P/E") ratio of 16.7x Rizhao Port Co.,Ltd (SHSE:600017) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 71x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

For instance, Rizhao PortLtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Rizhao PortLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Rizhao PortLtd's earnings, revenue and cash flow.

Is There Any Growth For Rizhao PortLtd?

In order to justify its P/E ratio, Rizhao PortLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.4%. As a result, earnings from three years ago have also fallen 3.4% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 39% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Rizhao PortLtd is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Rizhao PortLtd maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Rizhao PortLtd (2 are significant!) that you should be aware of before investing here.

You might be able to find a better investment than Rizhao PortLtd. 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).

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.