Why Investors Shouldn't Be Surprised By Pingdingshan Tianan Coal. Mining Co., Ltd.'s (SHSE:601666) Low P/E

Pingdingshan Tianan Coal. Mining Co., Ltd.'s (SHSE:601666) price-to-earnings (or "P/E") ratio of 7.3x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. 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.

While the market has experienced earnings growth lately, Pingdingshan Tianan Coal. Mining's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Pingdingshan Tianan Coal. Mining

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pingdingshan Tianan Coal. Mining.

Is There Any Growth For Pingdingshan Tianan Coal. Mining?

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 32% decrease to the company's bottom line. Even so, admirably EPS has lifted 105% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 4.9% per annum over the next three years. With the market predicted to deliver 24% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Pingdingshan Tianan Coal. Mining's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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 Pingdingshan Tianan Coal. Mining's analyst forecasts revealed that its inferior earnings outlook 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Pingdingshan Tianan Coal. Mining that you should be aware of.

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.