Lacklustre Performance Is Driving Jiangsu Xukuang Energy Co., Ltd.'s (SHSE:600925) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 37x, you may consider Jiangsu Xukuang Energy Co., Ltd. (SHSE:600925) as an attractive investment with its 20.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, Jiangsu Xukuang Energy's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Jiangsu Xukuang Energy

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Xukuang Energy will help you shine a light on its historical performance.

Is There Any Growth For Jiangsu Xukuang Energy?

In order to justify its P/E ratio, Jiangsu Xukuang Energy would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 22%. As a result, earnings from three years ago have also fallen 20% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's an unpleasant look.

In light of this, it's understandable that Jiangsu Xukuang Energy's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

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 Jiangsu Xukuang Energy revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Jiangsu Xukuang Energy with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Jiangsu Xukuang Energy. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.