There's No Escaping China State Construction Engineering Corporation Limited's (SHSE:601668) Muted Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider China State Construction Engineering Corporation Limited (SHSE:601668) as a highly attractive investment with its 4.2x P/E ratio. 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 State Construction Engineering could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

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Does Growth Match The Low P/E?

China State Construction Engineering's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 17% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 14% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 36% growth forecast for the broader market.

In light of this, it's understandable that China State Construction Engineering's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that China State Construction Engineering 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for China State Construction Engineering that you should be aware of.

If these risks are making you reconsider your opinion on China State Construction Engineering, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.