Unpleasant Surprises Could Be In Store For Zhuzhou CRRC Times Electric Co., Ltd.'s (HKG:3898) Shares

There wouldn't be many who think Zhuzhou CRRC Times Electric Co., Ltd.'s (HKG:3898) price-to-earnings (or "P/E") ratio of 9.1x is worth a mention when the median P/E in Hong Kong is similar at about 9x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been pleasing for Zhuzhou CRRC Times Electric as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for Zhuzhou CRRC Times Electric

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

Is There Some Growth For Zhuzhou CRRC Times Electric?

The only time you'd be comfortable seeing a P/E like Zhuzhou CRRC Times Electric's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 4.3% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 11% over the next year. With the market predicted to deliver 23% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that Zhuzhou CRRC Times Electric's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Zhuzhou CRRC Times Electric'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.

Our examination of Zhuzhou CRRC Times Electric's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Zhuzhou CRRC Times Electric with six simple checks on some of these key factors.

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.

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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.