COSCO SHIPPING Technology Co., Ltd. (SZSE:002401) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 9.0% isn't as impressive.
In spite of the firm bounce in price, COSCO SHIPPING Technology's price-to-earnings (or "P/E") ratio of 23.3x might still make it look like a buy right now compared to the market in China , where around half of the companies have P/E ratios above 31x and even P/E's above 55x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Earnings have risen firmly for COSCO SHIPPING Technology recently, which is pleasing to see. It might be that many expect the respectable 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 COSCO SHIPPING TechnologySZSE:002401 Price Based on Past Earnings May 31st 2022 Want the full picture on earnings, revenue and cash flow for the company? Then our free report on COSCO SHIPPING Technology will help you shine a light on its historical performance.
What Are Growth Metrics Telling Us About The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like COSCO SHIPPING Technology's to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.7% last year. Pleasingly, EPS has also lifted 90% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably less attractive on an annualised basis.
In light of this, it's understandable that COSCO SHIPPING Technology's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On COSCO SHIPPING Technology's P/E
The latest share price surge wasn't enough to lift COSCO SHIPPING Technology's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that COSCO SHIPPING Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Before you settle on your opinion, we've discovered 2 warning signs for COSCO SHIPPING Technology that you should be aware of.
Of course, you might also be able to find a better stock than COSCO SHIPPING Technology. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
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.