Yunnan Energy Investment Co., Ltd.'s (SZSE:002053) Price Is Right But Growth Is Lacking

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may consider Yunnan Energy Investment Co., Ltd. (SZSE:002053) as a highly attractive investment with its 13.9x P/E ratio. 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.

Yunnan Energy Investment 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 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 Yunnan Energy Investment

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How Is Yunnan Energy Investment's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Yunnan Energy Investment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 78% gain to the company's bottom line. Pleasingly, EPS has also lifted 239% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 30% as estimated by the sole analyst watching the company. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

In light of this, it's understandable that Yunnan Energy Investment'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 Yunnan Energy Investment'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 Yunnan Energy Investment 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 these 2 warning signs we've spotted with Yunnan Energy Investment (including 1 which doesn't sit too well with us).

If you're unsure about the strength of Yunnan Energy Investment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.