Investors Aren't Buying Jinneng Holding Shanxi Coal Industry Co.,ltd.'s (SHSE:601001) Earnings

With a price-to-earnings (or "P/E") ratio of 8.5x Jinneng Holding Shanxi Coal Industry Co.,ltd. (SHSE:601001) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 64x 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 so limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jinneng Holding Shanxi Coal Industryltd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 Jinneng Holding Shanxi Coal Industryltd

Want the full picture on analyst estimates for the company? Then our free report on Jinneng Holding Shanxi Coal Industryltd will help you uncover what's on the horizon.

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

Jinneng Holding Shanxi Coal Industryltd's 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.

Retrospectively, the last year delivered an exceptional 59% gain to the company's bottom line. The latest three year period has also seen an excellent 87% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 0.4% each year as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

In light of this, it's understandable that Jinneng Holding Shanxi Coal Industryltd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Jinneng Holding Shanxi Coal Industryltd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Jinneng Holding Shanxi Coal Industryltd that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.