DEPPON LOGISTICS Co., LTD.'s (SHSE:603056) Prospects Need A Boost To Lift Shares

With a price-to-earnings (or "P/E") ratio of 17.3x DEPPON LOGISTICS Co., LTD. (SHSE:603056) 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.

DEPPON LOGISTICS certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for DEPPON LOGISTICS

If you'd like to see what analysts are forecasting going forward, you should check out our free report on DEPPON LOGISTICS.

What Are Growth Metrics Telling Us About The Low P/E?

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

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 146% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 26% as estimated by the six analysts watching the company. With the market predicted to deliver 39% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that DEPPON LOGISTICS' 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 DEPPON LOGISTICS' 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.

As we suspected, our examination of DEPPON LOGISTICS' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Having said that, be aware DEPPON LOGISTICS is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than DEPPON LOGISTICS. 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.