Aesthetic Medical International Holdings Group Limited's (NASDAQ:AIH) price-to-earnings (or "P/E") ratio of 3.5x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 22x and even P/E's above 43x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
The earnings growth achieved at Aesthetic Medical International Holdings Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Aesthetic Medical International Holdings Group will help you shine a light on its historical performance.
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as depressed as Aesthetic Medical International Holdings Group's is when the company's growth is on track to lag the market decidedly.
Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
This is in contrast to the rest of the market, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we can see why Aesthetic Medical International Holdings Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Aesthetic Medical International Holdings Group'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.
We've established that Aesthetic Medical International Holdings Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Before you settle on your opinion, we've discovered 3 warning signs for Aesthetic Medical International Holdings Group (1 shouldn't be ignored!) that you should be aware of.
You might be able to find a better investment than Aesthetic Medical International Holdings Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.