Little Excitement Around Jinneng Holding Shanxi Coal Industry Co.,ltd.'s (SHSE:601001) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Jinneng Holding Shanxi Coal Industry Co.,ltd. (SHSE:601001) as a highly attractive investment with its 6.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Jinneng Holding Shanxi Coal Industryltd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Jinneng Holding Shanxi Coal Industryltd

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How Is Jinneng Holding Shanxi Coal Industryltd's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Jinneng Holding Shanxi Coal Industryltd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 81%. As a result, it also grew EPS by 23% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 4.8% during the coming year according to the six analysts following the company. That's not great when the rest of the market is expected to grow by 38%.

With this information, we are not surprised that Jinneng Holding Shanxi Coal Industryltd is trading at a P/E lower than the market. 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 Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Jinneng Holding Shanxi Coal Industryltd's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Jinneng Holding Shanxi Coal Industryltd with six simple checks on some of these key factors.

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.