When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Chengdu Xgimi Technology Co.,Ltd. (SHSE:688696) as an attractive investment with its 24.5x 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.
Recent times haven't been advantageous for Chengdu Xgimi TechnologyLtd as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
View our latest analysis for Chengdu Xgimi TechnologyLtd
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Chengdu Xgimi TechnologyLtd would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 26% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 4.5% over the next year. Meanwhile, the rest of the market is forecast to expand by 42%, which is noticeably more attractive.
With this information, we can see why Chengdu Xgimi TechnologyLtd 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.
What We Can Learn From Chengdu Xgimi TechnologyLtd's P/E?
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.
As we suspected, our examination of Chengdu Xgimi TechnologyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Having said that, be aware Chengdu Xgimi TechnologyLtd is showing 3 warning signs in our investment analysis, you should know about.
If you're unsure about the strength of Chengdu Xgimi TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.