It's A Story Of Risk Vs Reward With China Nonferrous Metal Industry's Foreign Engineering and Construction Co.,Ltd. (SZSE:000758)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider China Nonferrous Metal Industry's Foreign Engineering and Construction Co.,Ltd. (SZSE:000758) as an attractive investment with its 21.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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 China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's earnings, revenue and cash flow.

Is There Any Growth For China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd?

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 130% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 461% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

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 China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings 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 if recent medium-term earnings trends continue, 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. Take a look at our free balance sheet analysis for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd with six simple checks on some of these key factors.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.