With a price-to-earnings (or "P/E") ratio of 10.9x China Merchants Expressway Network & Technology Holdings Co.,Ltd. (SZSE:001965) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 64x are not unusual. 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, China Merchants Expressway Network & Technology HoldingsLtd 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for China Merchants Expressway Network & Technology HoldingsLtd
Is There Any Growth For China Merchants Expressway Network & Technology HoldingsLtd?
China Merchants Expressway Network & Technology HoldingsLtd's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. Pleasingly, EPS has also lifted 146% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 11% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to expand by 44%, which is noticeably more attractive.
With this information, we can see why China Merchants Expressway Network & Technology HoldingsLtd 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
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
As we suspected, our examination of China Merchants Expressway Network & Technology HoldingsLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.
Having said that, be aware China Merchants Expressway Network & Technology HoldingsLtd is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant.
Of course, you might also be able to find a better stock than China Merchants Expressway Network & Technology HoldingsLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.