Benign Growth For Jiangsu Changbao Steeltube Co.,Ltd (SZSE:002478) Underpins Its Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Jiangsu Changbao Steeltube Co.,Ltd (SZSE:002478) as a highly attractive investment with its 7.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, Jiangsu Changbao SteeltubeLtd has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Jiangsu Changbao SteeltubeLtd

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

In order to justify its P/E ratio, Jiangsu Changbao SteeltubeLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 18%. Pleasingly, EPS has also lifted 1,961% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 4.0% per annum as estimated by the dual analysts watching the company. With the market predicted to deliver 21% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Jiangsu Changbao SteeltubeLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Jiangsu Changbao SteeltubeLtd's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Jiangsu Changbao SteeltubeLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Jiangsu Changbao SteeltubeLtd (1 is significant) you should be aware of.

You might be able to find a better investment than Jiangsu Changbao SteeltubeLtd. 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.