Pinning Down Jiangsu Ruitai New Energy Materials Co., Ltd.'s (SZSE:301238) P/E Is Difficult Right Now

It's not a stretch to say that Jiangsu Ruitai New Energy Materials Co., Ltd.'s (SZSE:301238) price-to-earnings (or "P/E") ratio of 24.5x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 27x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Jiangsu Ruitai New Energy Materials' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Jiangsu Ruitai New Energy Materials

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Ruitai New Energy Materials will help you shine a light on its historical performance.

Is There Some Growth For Jiangsu Ruitai New Energy Materials?

The only time you'd be comfortable seeing a P/E like Jiangsu Ruitai New Energy Materials' is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 42%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Jiangsu Ruitai New Energy Materials' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Jiangsu Ruitai New Energy Materials' 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.

Our examination of Jiangsu Ruitai New Energy Materials revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for Jiangsu Ruitai New Energy Materials (1 can't be ignored!) that you should be aware of.

You might be able to find a better investment than Jiangsu Ruitai New Energy Materials. 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.