Xizi Clean Energy Equipment Manufacturing Co., Ltd. (SZSE:002534) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider Xizi Clean Energy Equipment Manufacturing Co., Ltd. (SZSE:002534) as an attractive investment with its 22.3x 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.

Recent times have been pleasing for Xizi Clean Energy Equipment Manufacturing as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you 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.

View our latest analysis for Xizi Clean Energy Equipment Manufacturing

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Xizi Clean Energy Equipment Manufacturing.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Xizi Clean Energy Equipment Manufacturing would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 158% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 29% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 11% each year during the coming three years according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 18% each year, which is noticeably more attractive.

With this information, we can see why Xizi Clean Energy Equipment Manufacturing 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.

The Final Word

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.

As we suspected, our examination of Xizi Clean Energy Equipment Manufacturing's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Xizi Clean Energy Equipment Manufacturing that you should be aware of.

If you're unsure about the strength of Xizi Clean Energy Equipment Manufacturing's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.