Not Many Are Piling Into Anhui Jinhe Industrial Co.,Ltd. (SZSE:002597) Just Yet

With a price-to-earnings (or "P/E") ratio of 22.5x Anhui Jinhe Industrial Co.,Ltd. (SZSE:002597) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 73x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Anhui Jinhe IndustrialLtd has been struggling lately as its earnings have declined faster than most other companies. 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. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Anhui Jinhe IndustrialLtd

Keen to find out how analysts think Anhui Jinhe IndustrialLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Anhui Jinhe IndustrialLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Anhui Jinhe IndustrialLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 38% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 71% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

With this information, we find it odd that Anhui Jinhe IndustrialLtd is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Anhui Jinhe IndustrialLtd'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.

We've established that Anhui Jinhe IndustrialLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Anhui Jinhe IndustrialLtd you should be aware of, and 1 of them makes us a bit uncomfortable.

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.