Asia-potash International Investment (Guangzhou)Co.,Ltd.'s (SZSE:000893) Earnings Are Not Doing Enough For Some Investors

Asia-potash International Investment (Guangzhou)Co.,Ltd.'s (SZSE:000893) price-to-earnings (or "P/E") ratio of 11.7x 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 30x and even P/E's above 54x 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.

Asia-potash International Investment (Guangzhou)Co.Ltd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Asia-potash International Investment (Guangzhou)Co.Ltd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Asia-potash International Investment (Guangzhou)Co.Ltd.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Asia-potash International Investment (Guangzhou)Co.Ltd would need to produce anemic growth that's substantially trailing the market.

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 5.4%. Even so, admirably EPS has lifted 10,441% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 24% over the next year. With the market predicted to deliver 36% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Asia-potash International Investment (Guangzhou)Co.Ltd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Asia-potash International Investment (Guangzhou)Co.Ltd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Asia-potash International Investment (Guangzhou)Co.Ltd you should be aware of, and 1 of them can't be ignored.

You might be able to find a better investment than Asia-potash International Investment (Guangzhou)Co.Ltd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.