Investors Aren't Buying China Boqi Environmental (Holding) Co., Ltd.'s (HKG:2377) Earnings

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider China Boqi Environmental (Holding) Co., Ltd. (HKG:2377) as a highly attractive investment with its 2.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for China Boqi Environmental (Holding) as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

Check out our latest analysis for China Boqi Environmental (Holding)

Keen to find out how analysts think China Boqi Environmental (Holding)'s future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as China Boqi Environmental (Holding)'s is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 58%. As a result, it also grew EPS by 14% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 3.7% as estimated by the only analyst watching the company. With the market predicted to deliver 22% growth , the company is positioned for a weaker earnings result.

With this information, we can see why China Boqi Environmental (Holding) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that China Boqi Environmental (Holding) maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 2 warning signs for China Boqi Environmental (Holding) you should know about.

You might be able to find a better investment than China Boqi Environmental (Holding). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.