There's No Escaping SDIC Power Holdings Co., Ltd's (SHSE:600886) Muted Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider SDIC Power Holdings Co., Ltd (SHSE:600886) as an attractive investment with its 19.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, SDIC Power Holdings has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 SDIC Power Holdings

Keen to find out how analysts think SDIC Power Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For SDIC Power Holdings?

The only time you'd be truly comfortable seeing a P/E as low as SDIC Power Holdings' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 98% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 31% over the next year. With the market predicted to deliver 36% growth , the company is positioned for a weaker earnings result.

With this information, we can see why SDIC Power Holdings 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 Final Word

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 SDIC Power Holdings' 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for SDIC Power Holdings (of which 1 is concerning!) you should know about.

If you're unsure about the strength of SDIC Power Holdings' 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.