Benign Growth For Shandong Nanshan Aluminium Co.,Ltd. (SHSE:600219) Underpins Its Share Price

With a price-to-earnings (or "P/E") ratio of 9.5x Shandong Nanshan Aluminium Co.,Ltd. (SHSE:600219) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x 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 pleasing for Shandong Nanshan AluminiumLtd as its earnings have risen in spite of the market's earnings going into reverse. 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Shandong Nanshan AluminiumLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shandong Nanshan AluminiumLtd.

How Is Shandong Nanshan AluminiumLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Shandong Nanshan AluminiumLtd's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 83% last year. Pleasingly, EPS has also lifted 60% 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.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings growth is heading into negative territory, declining 3.6% over the next year. That's not great when the rest of the market is expected to grow by 39%.

With this information, we are not surprised that Shandong Nanshan AluminiumLtd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Shandong Nanshan AluminiumLtd'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.

As we suspected, our examination of Shandong Nanshan AluminiumLtd's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

Before you take the next step, you should know about the 2 warning signs for Shandong Nanshan AluminiumLtd that we have uncovered.

Of course, you might also be able to find a better stock than Shandong Nanshan AluminiumLtd. 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.