Dongfeng Motor Group Company Limited's (HKG:489) Earnings Are Not Doing Enough For Some Investors

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Dongfeng Motor Group Company Limited (HKG:489) as a highly attractive investment with its 4.4x 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 so limited.

Dongfeng Motor Group has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Dongfeng Motor Group

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

How Is Dongfeng Motor Group's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 27% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 22% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 3.9% each year during the coming three years according to the eight analysts following the company. Meanwhile, the broader market is forecast to expand by 15% per year, which paints a poor picture.

With this information, we are not surprised that Dongfeng Motor Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Dongfeng Motor Group'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 Dongfeng Motor Group's analyst forecasts revealed that its outlook for shrinking earnings 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Dongfeng Motor Group (of which 1 can't be ignored!) you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.