There Is A Reason Yantai Jereh Oilfield Services Group Co., Ltd.'s (SZSE:002353) Price Is Undemanding

With a price-to-earnings (or "P/E") ratio of 14x Yantai Jereh Oilfield Services Group Co., Ltd. (SZSE:002353) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x 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.

Recent times have been advantageous for Yantai Jereh Oilfield Services Group as its earnings have been rising faster than most other companies. 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.

See our latest analysis for Yantai Jereh Oilfield Services Group

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Is There Any Growth For Yantai Jereh Oilfield Services Group?

In order to justify its P/E ratio, Yantai Jereh Oilfield Services Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 5.6% gain to the company's bottom line. The latest three year period has also seen an excellent 32% overall rise in EPS, aided somewhat 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 11% per annum as estimated by the analysts watching the company. With the market predicted to deliver 25% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Yantai Jereh Oilfield Services Group 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 Yantai Jereh Oilfield Services Group's P/E

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.

We've established that Yantai Jereh Oilfield Services Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Yantai Jereh Oilfield Services Group.

Of course, you might also be able to find a better stock than Yantai Jereh Oilfield Services Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.