There Is A Reason COSCO SHIPPING Specialized Carriers Co.,Ltd.'s (SHSE:600428) Price Is Undemanding

COSCO SHIPPING Specialized Carriers Co.,Ltd.'s (SHSE:600428) price-to-earnings (or "P/E") ratio of 12.7x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 34x and even P/E's above 64x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been pleasing for COSCO SHIPPING Specialized CarriersLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 COSCO SHIPPING Specialized CarriersLtd

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Does Growth Match The Low P/E?

COSCO SHIPPING Specialized CarriersLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Although pleasingly EPS has lifted 485% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 15% per year over the next three years. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why COSCO SHIPPING Specialized CarriersLtd is trading at a P/E lower than the market. 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 COSCO SHIPPING Specialized CarriersLtd'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.

As we suspected, our examination of COSCO SHIPPING Specialized CarriersLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for COSCO SHIPPING Specialized CarriersLtd that you should be aware of.

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

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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.