Little Excitement Around Wuhan Tianyuan Environmental Protection Co.,LTD's (SZSE:301127) Earnings

With a price-to-earnings (or "P/E") ratio of 18.1x Wuhan Tianyuan Environmental Protection Co.,LTD (SZSE:301127) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 28x and even P/E's higher than 52x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Wuhan Tianyuan Environmental ProtectionLTD as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Wuhan Tianyuan Environmental ProtectionLTD

Although there are no analyst estimates available for Wuhan Tianyuan Environmental ProtectionLTD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Wuhan Tianyuan Environmental ProtectionLTD?

The only time you'd be truly comfortable seeing a P/E as low as Wuhan Tianyuan Environmental ProtectionLTD's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 39%. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb 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 understandable that Wuhan Tianyuan Environmental ProtectionLTD'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 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.

We've established that Wuhan Tianyuan Environmental ProtectionLTD maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Wuhan Tianyuan Environmental ProtectionLTD (of which 1 is concerning!) you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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

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.