Asia-potash International Investment (Guangzhou)Co.,Ltd.'s (SZSE:000893) Shares Leap 30% Yet They're Still Not Telling The Full Story

Asia-potash International Investment (Guangzhou)Co.,Ltd. (SZSE:000893) shareholders have had their patience rewarded with a 30% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 22% in the last twelve months.

Although its price has surged higher, Asia-potash International Investment (Guangzhou)Co.Ltd's price-to-earnings (or "P/E") ratio of 26.7x might still 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 37x and even P/E's above 73x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Asia-potash International Investment (Guangzhou)Co.Ltd has been very sluggish. 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.

See 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.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Asia-potash International Investment (Guangzhou)Co.Ltd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 55% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 19% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 44% as estimated by the four analysts watching the company. With the market predicted to deliver 41% growth , the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Asia-potash International Investment (Guangzhou)Co.Ltd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Asia-potash International Investment (Guangzhou)Co.Ltd's P/E

Despite Asia-potash International Investment (Guangzhou)Co.Ltd's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Asia-potash International Investment (Guangzhou)Co.Ltd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Asia-potash International Investment (Guangzhou)Co.Ltd that you need to be mindful 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.