When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Zhejiang Longsheng Group Co.,Ltd (SHSE:600352) as a highly attractive investment with its 12.4x 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 so limited.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Zhejiang Longsheng GroupLtd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.
View our latest analysis for Zhejiang Longsheng GroupLtd
Is There Any Growth For Zhejiang Longsheng GroupLtd?
In order to justify its P/E ratio, Zhejiang Longsheng GroupLtd would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings growth, the company posted a worthy increase of 6.6%. Still, lamentably EPS has fallen 49% in aggregate from three years ago, which is 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 four analysts covering the company suggest earnings should grow by 25% over the next year. Meanwhile, the rest of the market is forecast to expand by 44%, which is noticeably more attractive.
With this information, we can see why Zhejiang Longsheng GroupLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Zhejiang Longsheng GroupLtd 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. It's hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Zhejiang Longsheng GroupLtd that 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).
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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.