There's No Escaping Alnera Aluminium Co., Ltd.'s (SZSE:301613) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 33x Alnera Aluminium Co., Ltd. (SZSE:301613) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 39x and even P/E's higher than 77x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Alnera Aluminium has been struggling lately as its earnings have declined faster 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. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Alnera Aluminium

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How Is Alnera Aluminium's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Alnera Aluminium's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 9.5%. Still, the latest three year period has seen an excellent 432% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 11% over the next year. That's shaping up to be materially lower than the 37% growth forecast for the broader market.

With this information, we can see why Alnera Aluminium is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Alnera Aluminium'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 Alnera Aluminium maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Alnera Aluminium, and understanding these should be part of your investment process.

You might be able to find a better investment than Alnera Aluminium. 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.