There's No Escaping Anhui Gujing Distillery Co., Ltd.'s (SZSE:000596) Muted Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Anhui Gujing Distillery Co., Ltd. (SZSE:000596) as a highly attractive investment with its 16.1x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Anhui Gujing Distillery 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. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Anhui Gujing Distillery

Keen to find out how analysts think Anhui Gujing Distillery's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Anhui Gujing Distillery's Growth Trending?

In order to justify its P/E ratio, Anhui Gujing Distillery would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 133% 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.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 15% each year over the next three years. With the market predicted to deliver 21% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Anhui Gujing Distillery's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Anhui Gujing Distillery'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 Anhui Gujing Distillery 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Anhui Gujing Distillery (1 can't be ignored) you should be aware of.

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.