Fujian Haixia Environmental Protection Group Co.,Ltd.'s (SHSE:603817) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 16.6x Fujian Haixia Environmental Protection Group Co.,Ltd. (SHSE:603817) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, Fujian Haixia Environmental Protection GroupLtd's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Fujian Haixia Environmental Protection GroupLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Fujian Haixia Environmental Protection GroupLtd's earnings, revenue and cash flow.

Is There Any Growth For Fujian Haixia Environmental Protection GroupLtd?

There's an inherent assumption that a company should underperform the market for P/E ratios like Fujian Haixia Environmental Protection GroupLtd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.6%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.6% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Fujian Haixia Environmental Protection GroupLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

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.

As we suspected, our examination of Fujian Haixia Environmental Protection GroupLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Fujian Haixia Environmental Protection GroupLtd (1 is concerning!) that you need to be mindful of.

If you're unsure about the strength of Fujian Haixia Environmental Protection GroupLtd'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.