It's not a stretch to say that Guangdong KinLong Hardware Products Co.,Ltd.'s (SZSE:002791) price-to-earnings (or "P/E") ratio of 31.3x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 29x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Guangdong KinLong Hardware ProductsLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
SZSE:002791 Price to Earnings Ratio vs Industry April 18th 2024 Keen to find out how analysts think Guangdong KinLong Hardware ProductsLtd's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Guangdong KinLong Hardware ProductsLtd's Growth Trending?
Guangdong KinLong Hardware ProductsLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
Retrospectively, the last year delivered an exceptional 405% gain to the company's bottom line. Still, incredibly EPS has fallen 60% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 33% per year over the next three years. That's shaping up to be materially higher than the 21% per annum growth forecast for the broader market.
In light of this, it's curious that Guangdong KinLong Hardware ProductsLtd's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Final Word
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Guangdong KinLong Hardware ProductsLtd currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Guangdong KinLong Hardware ProductsLtd with six simple checks on some of these key factors.
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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