Lacklustre Performance Is Driving Anhui Province Natural Gas DevelopmentCo.,Ltd.'s (SHSE:603689) Low P/E

With a price-to-earnings (or "P/E") ratio of 12.3x Anhui Province Natural Gas DevelopmentCo.,Ltd. (SHSE:603689) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 59x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Anhui Province Natural Gas DevelopmentCo.Ltd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Anhui Province Natural Gas DevelopmentCo.Ltd

Although there are no analyst estimates available for Anhui Province Natural Gas DevelopmentCo.Ltd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Anhui Province Natural Gas DevelopmentCo.Ltd's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Anhui Province Natural Gas DevelopmentCo.Ltd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. The latest three year period has also seen an excellent 65% 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.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Anhui Province Natural Gas DevelopmentCo.Ltd's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Anhui Province Natural Gas DevelopmentCo.Ltd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Anhui Province Natural Gas DevelopmentCo.Ltd has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.