When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Shinva Medical Instrument Co.,Ltd. (SHSE:600587) as an attractive investment with its 17.3x 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.
Shinva Medical InstrumentLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.
See our latest analysis for Shinva Medical InstrumentLtd
Does Growth Match The Low P/E?
Shinva Medical InstrumentLtd'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 decent 14% gain to the company's bottom line. The latest three year period has also seen an excellent 113% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 19% over the next year. Meanwhile, the rest of the market is forecast to expand by 43%, which is noticeably more attractive.
In light of this, it's understandable that Shinva Medical InstrumentLtd's P/E sits below the majority of other companies. 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
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.
We've established that Shinva Medical InstrumentLtd 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.
Before you settle on your opinion, we've discovered 2 warning signs for Shinva Medical InstrumentLtd that you should be aware of.
If these risks are making you reconsider your opinion on Shinva Medical InstrumentLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.