Investors Holding Back On China Nuclear Engineering Corporation Limited (SHSE:601611)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider China Nuclear Engineering Corporation Limited (SHSE:601611) as a highly attractive investment with its 12.5x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

China Nuclear Engineering certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

View our latest analysis for China Nuclear Engineering

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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.

Retrospectively, the last year delivered a decent 3.2% gain to the company's bottom line. The latest three year period has also seen an excellent 53% 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.

Turning to the outlook, the next year should generate growth of 41% as estimated by the six analysts watching the company. That's shaping up to be similar to the 38% growth forecast for the broader market.

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.

The Bottom Line On China Nuclear Engineering'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 China Nuclear Engineering currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 2 warning signs for China Nuclear Engineering (1 makes us a bit uncomfortable!) that we have uncovered.

You might be able to find a better investment than China Nuclear Engineering. 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.