Earnings Working Against Minmetals Capital Company Limited's (SHSE:600390) Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Minmetals Capital Company Limited (SHSE:600390) as a highly attractive investment with its 10.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Minmetals Capital could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Minmetals Capital

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Minmetals Capital.

What Are Growth Metrics Telling Us About The Low P/E?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 47%. This means it has also seen a slide in earnings over the longer-term as EPS is down 57% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 22% per year during the coming three years according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to expand by 24% per year, which is noticeably more attractive.

In light of this, it's understandable that Minmetals Capital'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.

What We Can Learn From Minmetals Capital's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Minmetals Capital maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these 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 1 warning sign for Minmetals Capital 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.

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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.

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