There's No Escaping CNOOC Energy Technology & Services Limited's (SHSE:600968) Muted Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider CNOOC Energy Technology & Services Limited (SHSE:600968) as a highly attractive investment with its 12.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

CNOOC Energy Technology & Services certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for CNOOC Energy Technology & Services

Keen to find out how analysts think CNOOC Energy Technology & Services' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For CNOOC Energy Technology & Services?

CNOOC Energy Technology & Services' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. The latest three year period has also seen an excellent 97% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 24% per year growth forecast for the broader market.

With this information, we can see why CNOOC Energy Technology & Services is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that CNOOC Energy Technology & Services 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware CNOOC Energy Technology & Services is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than CNOOC Energy Technology & Services. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.