It's A Story Of Risk Vs Reward With Guangxi Huaxi Nonferrous Metal Co.,Ltd (SHSE:600301)

With a price-to-earnings (or "P/E") ratio of 19.1x Guangxi Huaxi Nonferrous Metal Co.,Ltd (SHSE:600301) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 72x 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 limited.

Guangxi Huaxi Nonferrous MetalLtd 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.

Check out our latest analysis for Guangxi Huaxi Nonferrous MetalLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Guangxi Huaxi Nonferrous MetalLtd.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Guangxi Huaxi Nonferrous MetalLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 127% last year. Pleasingly, EPS has also lifted 886% 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 67% as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we find it odd that Guangxi Huaxi Nonferrous MetalLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Guangxi Huaxi Nonferrous MetalLtd'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.

Our examination of Guangxi Huaxi Nonferrous MetalLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Guangxi Huaxi Nonferrous MetalLtd with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Guangxi Huaxi Nonferrous MetalLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.