Earnings Tell The Story For Ningxia Orient Tantalum Industry Co., Ltd. (SZSE:000962)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 26x, you may consider Ningxia Orient Tantalum Industry Co., Ltd. (SZSE:000962) as a stock to potentially avoid with its 29x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Ningxia Orient Tantalum Industry's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Ningxia Orient Tantalum Industry

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ningxia Orient Tantalum Industry.

Is There Enough Growth For Ningxia Orient Tantalum Industry?

Ningxia Orient Tantalum Industry's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than 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 8.9%. Still, the latest three year period has seen an excellent 60% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

Turning to the outlook, the next three years should generate growth of 34% each year as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 23% per annum, which is noticeably less attractive.

In light of this, it's understandable that Ningxia Orient Tantalum Industry's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Ningxia Orient Tantalum Industry's P/E

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.

As we suspected, our examination of Ningxia Orient Tantalum Industry's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Ningxia Orient Tantalum Industry (1 is a bit concerning!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.