Insufficient Growth At Shan Xi Hua Yang Group New Energy Co.,Ltd. (SHSE:600348) Hampers Share Price

Shan Xi Hua Yang Group New Energy Co.,Ltd.'s (SHSE:600348) price-to-earnings (or "P/E") ratio of 5.7x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 54x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for Shan Xi Hua Yang Group New EnergyLtd has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Check out our latest analysis for Shan Xi Hua Yang Group New EnergyLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shan Xi Hua Yang Group New EnergyLtd.

Is There Any Growth For Shan Xi Hua Yang Group New EnergyLtd?

The only time you'd be truly comfortable seeing a P/E as depressed as Shan Xi Hua Yang Group New EnergyLtd's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow EPS by an impressive 422% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings growth is heading into negative territory, declining 5.1% over the next year. With the market predicted to deliver 36% growth , that's a disappointing outcome.

In light of this, it's understandable that Shan Xi Hua Yang Group New EnergyLtd's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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 Shan Xi Hua Yang Group New EnergyLtd maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Shan Xi Hua Yang Group New EnergyLtd that you should be aware of.

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.