Why Investors Shouldn't Be Surprised By Zhuhai Port Co.,Ltd.'s (SZSE:000507) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Zhuhai Port Co.,Ltd. (SZSE:000507) as a highly attractive investment with its 15x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

As an illustration, earnings have deteriorated at Zhuhai PortLtd over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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.

View our latest analysis for Zhuhai 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 Zhuhai PortLtd's earnings, revenue and cash flow.

How Is Zhuhai PortLtd's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 46% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Zhuhai PortLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Zhuhai PortLtd's 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 Zhuhai PortLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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 rising strongly in the near future under these circumstances.

Having said that, be aware Zhuhai PortLtd is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If you're unsure about the strength of Zhuhai PortLtd's 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.