With a price-to-earnings (or "P/E") ratio of 12.3x Zbom Home Collection Co.,Ltd (SHSE:603801) 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 57x 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.
Zbom Home CollectionLtd 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. 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.
View our latest analysis for Zbom Home CollectionLtd
Is There Any Growth For Zbom Home CollectionLtd?
The only time you'd be truly comfortable seeing a P/E as depressed as Zbom Home CollectionLtd's is when the company's growth is on track to lag the market decidedly.
Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. The latest three year period has also seen an excellent 95% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 19% over the next year. That's shaping up to be materially lower than the 42% growth forecast for the broader market.
In light of this, it's understandable that Zbom Home CollectionLtd'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 Bottom Line On Zbom Home CollectionLtd's P/E
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.
As we suspected, our examination of Zbom Home CollectionLtd'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.
Before you take the next step, you should know about the 1 warning sign for Zbom Home CollectionLtd that we have uncovered.
You might be able to find a better investment than Zbom Home CollectionLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.