When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Ningbo Jintian Copper (Group) Co., Ltd. (SHSE:601609) as an attractive investment with its 18.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With earnings growth that's superior to most other companies of late, Ningbo Jintian Copper (Group) has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Is There Any Growth For Ningbo Jintian Copper (Group)?
The only time you'd be truly comfortable seeing a P/E as low as Ningbo Jintian Copper (Group)'s is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 45% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 17% per annum over the next three years. That's shaping up to be materially lower than the 26% per annum growth forecast for the broader market.
In light of this, it's understandable that Ningbo Jintian Copper (Group)'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 Ningbo Jintian Copper (Group)'s P/E
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 Ningbo Jintian Copper (Group) maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.
Before you take the next step, you should know about the 2 warning signs for Ningbo Jintian Copper (Group) (1 is potentially serious!) that we have uncovered.
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.