Sichuan Anning Iron and Titanium Co.,Ltd.'s (SZSE:002978) Price Is Right But Growth Is Lacking

Sichuan Anning Iron and Titanium Co.,Ltd.'s (SZSE:002978) price-to-earnings (or "P/E") ratio of 13.3x 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 38x and even P/E's above 74x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Sichuan Anning Iron and TitaniumLtd's negative earnings growth of late has neither been better nor worse than most other companies. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. At the very least, you'd be hoping that earnings don't fall off a cliff if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Sichuan Anning Iron and TitaniumLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sichuan Anning Iron and TitaniumLtd.

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

There's an inherent assumption that a company should far underperform the market for P/E ratios like Sichuan Anning Iron and TitaniumLtd's to be considered reasonable.

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 2.8%. This means it has also seen a slide in earnings over the longer-term as EPS is down 34% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 13% over the next year. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

In light of this, it's understandable that Sichuan Anning Iron and TitaniumLtd'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.

What We Can Learn From Sichuan Anning Iron and TitaniumLtd'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 Sichuan Anning Iron and TitaniumLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Sichuan Anning Iron and TitaniumLtd (1 makes us a bit uncomfortable!) that you need to take into consideration.

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.