Little Excitement Around Kailuan Energy Chemical Co.,Ltd.'s (SHSE:600997) Earnings

Kailuan Energy Chemical Co.,Ltd.'s (SHSE:600997) price-to-earnings (or "P/E") ratio of 11.9x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 31x and even P/E's above 56x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Kailuan Energy ChemicalLtd hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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 Kailuan Energy ChemicalLtd

Keen to find out how analysts think Kailuan Energy ChemicalLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Kailuan Energy ChemicalLtd?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 41%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 2.4% per annum over the next three years. That's shaping up to be materially lower than the 21% per year growth forecast for the broader market.

In light of this, it's understandable that Kailuan Energy ChemicalLtd'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 Bottom Line On Kailuan Energy ChemicalLtd's P/E

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.

As we suspected, our examination of Kailuan Energy ChemicalLtd's analyst forecasts revealed that its inferior earnings outlook 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Kailuan Energy ChemicalLtd you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.