There's No Escaping Dynagreen Environmental Protection Group Co., Ltd.'s (HKG:1330) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 10x Dynagreen Environmental Protection Group Co., Ltd. (HKG:1330) may be sending bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 25x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's superior to most other companies of late, Dynagreen Environmental Protection Group has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Dynagreen Environmental Protection Group

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Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. Still, incredibly EPS has fallen 2.6% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 5.8% per annum over the next three years. That's shaping up to be materially lower than the 13% per annum growth forecast for the broader market.

In light of this, it's understandable that Dynagreen Environmental Protection Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Dynagreen Environmental Protection Group's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Dynagreen Environmental Protection Group's 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Dynagreen Environmental Protection Group you should be aware of, and 1 of them can't be ignored.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.