There's No Escaping Jiangsu Evergreen New Material Technology Incorporated Company's (SHSE:603125) Muted Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 37x, you may consider Jiangsu Evergreen New Material Technology Incorporated Company (SHSE:603125) as an attractive investment with its 28.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that Jiangsu Evergreen New Material Technology's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Jiangsu Evergreen New Material Technology

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Jiangsu Evergreen New Material Technology will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Jiangsu Evergreen New Material Technology's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 6.5% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 39% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Jiangsu Evergreen New Material Technology is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

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 Jiangsu Evergreen New Material Technology maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Jiangsu Evergreen New Material Technology (including 1 which shouldn't be ignored).

Of course, you might also be able to find a better stock than Jiangsu Evergreen New Material Technology. 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.