With a price-to-earnings (or "P/E") ratio of 14.1x Hainan Haide Capital Management Co., Ltd. (SZSE:000567) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 58x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Hainan Haide Capital Management 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 Hainan Haide Capital Management
How Is Hainan Haide Capital Management's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Hainan Haide Capital Management's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 33%. The latest three year period has also seen an excellent 1,171% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 21% over the next year. With the market predicted to deliver 43% growth , the company is positioned for a weaker earnings result.
In light of this, it's understandable that Hainan Haide Capital Management's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Key Takeaway
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 Hainan Haide Capital Management 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.
Plus, you should also learn about these 2 warning signs we've spotted with Hainan Haide Capital Management (including 1 which is a bit concerning).
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.