China National Building Material Company Limited (HKG:3323) Screens Well But There Might Be A Catch

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider China National Building Material Company Limited (HKG:3323) as an attractive investment with its 6x 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 limited.

While the market has experienced earnings growth lately, China National Building Material's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for China National Building Material

Want the full picture on analyst estimates for the company? Then our free report on China National Building Material will help you uncover what's on the horizon.

How Is China National Building Material's Growth Trending?

China National Building Material's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 78% in aggregate. 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 ten analysts covering the company suggest earnings should grow by 22% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.

In light of this, it's peculiar that China National Building Material's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On China National Building Material's P/E

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.

Our examination of China National Building Material's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for China National Building Material (1 is potentially serious) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.