Improved Earnings Required Before Pingdingshan Tianan Coal. Mining Co., Ltd. (SHSE:601666) Stock's 36% Jump Looks Justified

Pingdingshan Tianan Coal. Mining Co., Ltd. (SHSE:601666) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 3.7% isn't as impressive.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may still consider Pingdingshan Tianan Coal. Mining as a highly attractive investment with its 8.2x 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.

Recent times haven't been advantageous for Pingdingshan Tianan Coal. Mining as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Pingdingshan Tianan Coal. Mining

Want the full picture on analyst estimates for the company? Then our free report on Pingdingshan Tianan Coal. Mining will help you uncover what's on the horizon.

How Is Pingdingshan Tianan Coal. Mining's Growth Trending?

In order to justify its P/E ratio, Pingdingshan Tianan Coal. Mining would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 70% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 7.6% per annum as estimated by the seven analysts watching the company. With the market predicted to deliver 19% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Pingdingshan Tianan Coal. Mining 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 Bottom Line On Pingdingshan Tianan Coal. Mining's P/E

Even after such a strong price move, Pingdingshan Tianan Coal. Mining's P/E still trails the rest of the market significantly. 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 Pingdingshan Tianan Coal. Mining'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Pingdingshan Tianan Coal. Mining.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.