Investors Aren't Buying Jiangsu Provincial Agricultural Reclamation and Development Co.,Ltd.'s (SHSE:601952) Earnings

With a price-to-earnings (or "P/E") ratio of 17.7x Jiangsu Provincial Agricultural Reclamation and Development Co.,Ltd. (SHSE:601952) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 65x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd

Keen to find out how analysts think Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.4% last year. EPS has also lifted 23% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 19% per annum, which is noticeably more attractive.

In light of this, it's understandable that Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd'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.

What We Can Learn From Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's P/E?

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 Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd'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. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd you should be aware of.

If you're unsure about the strength of Jiangsu Provincial Agricultural Reclamation and DevelopmentLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.