Benign Growth For Inner Mongolia Yili Industrial Group Co., Ltd. (SHSE:600887) Underpins Its Share Price

Inner Mongolia Yili Industrial Group Co., Ltd.'s (SHSE:600887) price-to-earnings (or "P/E") ratio of 16.1x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 31x and even P/E's above 57x 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 limited.

Inner Mongolia Yili Industrial Group certainly has been doing a good job lately as it's been growing earnings more 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.

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Is There Any Growth For Inner Mongolia Yili Industrial Group?

The only time you'd be truly comfortable seeing a P/E as low as Inner Mongolia Yili Industrial Group's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow EPS by 39% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 5.7% per year over the next three years. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Inner Mongolia Yili Industrial Group is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Inner Mongolia Yili Industrial Group's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Inner Mongolia Yili Industrial Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Inner Mongolia Yili Industrial Group with six simple checks.

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.