There's No Escaping EIT Environmental Development Group Co.,Ltd's (SZSE:300815) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 9.3x EIT Environmental Development Group Co.,Ltd (SZSE:300815) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 51x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, EIT Environmental Development GroupLtd has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for EIT Environmental Development GroupLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EIT Environmental Development GroupLtd.

How Is EIT Environmental Development GroupLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as EIT Environmental Development GroupLtd's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 4.9% gain to the company's bottom line. Still, lamentably EPS has fallen 17% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the three analysts watching the company. With the market predicted to deliver 24% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that EIT Environmental Development GroupLtd's P/E sits below the majority of other companies. 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

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of EIT Environmental Development GroupLtd'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware EIT Environmental Development GroupLtd is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

If you're unsure about the strength of EIT Environmental Development 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com