Investors Continue Waiting On Sidelines For Nantong Jiangshan Agrochemical & Chemicals Co.,Ltd. (SHSE:600389)

Nantong Jiangshan Agrochemical & Chemicals Co.,Ltd.'s (SHSE:600389) price-to-earnings (or "P/E") ratio of 21.3x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 27x and even P/E's above 51x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Nantong Jiangshan Agrochemical & ChemicalsLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Nantong Jiangshan Agrochemical & ChemicalsLtd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 68%. The last three years don't look nice either as the company has shrunk EPS by 40% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 36% per year over the next three years. That's shaping up to be materially higher than the 23% per annum growth forecast for the broader market.

In light of this, it's peculiar that Nantong Jiangshan Agrochemical & ChemicalsLtd's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Nantong Jiangshan Agrochemical & ChemicalsLtd'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 Nantong Jiangshan Agrochemical & ChemicalsLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about this 1 warning sign we've spotted with Nantong Jiangshan Agrochemical & ChemicalsLtd.

Of course, you might also be able to find a better stock than Nantong Jiangshan Agrochemical & ChemicalsLtd. 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.