Antong Holdings Co., Ltd. (SHSE:600179) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider Antong Holdings Co., Ltd. (SHSE:600179) as an attractive investment with its 20.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For example, consider that Antong Holdings' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Antong Holdings

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 Antong Holdings' earnings, revenue and cash flow.

How Is Antong Holdings' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 70%. As a result, earnings from three years ago have also fallen 76% 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 36% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Antong Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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.

As we suspected, our examination of Antong Holdings revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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.

It is also worth noting that we have found 2 warning signs for Antong Holdings that you need to take into consideration.

You might be able to find a better investment than Antong Holdings. 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.