Baoji Titanium Industry Co., Ltd.'s (SHSE:600456) Share Price Is Matching Sentiment Around Its Earnings

Baoji Titanium Industry Co., Ltd.'s (SHSE:600456) price-to-earnings (or "P/E") ratio of 32.7x 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 40x and even P/E's above 78x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Baoji Titanium Industry has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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Is There Any Growth For Baoji Titanium Industry?

In order to justify its P/E ratio, Baoji Titanium Industry would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. This means it has also seen a slide in earnings over the longer-term as EPS is down 17% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 31% during the coming year according to the three analysts following the company. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Baoji Titanium Industry's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Baoji Titanium Industry 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Baoji Titanium Industry has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Baoji Titanium Industry'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.