China Nuclear Engineering Corporation Limited (SHSE:601611) Might Not Be As Mispriced As It Looks

With a price-to-earnings (or "P/E") ratio of 10.7x China Nuclear Engineering Corporation Limited (SHSE:601611) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 50x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

China Nuclear Engineering certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

Check out our latest analysis for China Nuclear Engineering

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Nuclear Engineering.

Is There Any Growth For China Nuclear Engineering?

In order to justify its P/E ratio, China Nuclear Engineering would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.0% last year. The latest three year period has also seen an excellent 46% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 21% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 23% per annum, which is not materially different.

In light of this, it's peculiar that China Nuclear Engineering's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From China Nuclear Engineering's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of China Nuclear Engineering's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider and we've discovered 2 warning signs for China Nuclear Engineering (1 is concerning!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than China Nuclear Engineering. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.