Fujian Yuanli Active Carbon Co.,Ltd.'s (SZSE:300174) Shares Lagging The Market But So Is The Business

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may consider Fujian Yuanli Active Carbon Co.,Ltd. (SZSE:300174) as an attractive investment with its 24.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Fujian Yuanli Active CarbonLtd hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Fujian Yuanli Active CarbonLtd

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How Is Fujian Yuanli Active CarbonLtd's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.9%. Even so, admirably EPS has lifted 164% in aggregate from three years ago, notwithstanding the last 12 months. 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 year should generate growth of 25% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 39% growth forecast for the broader market.

With this information, we can see why Fujian Yuanli Active CarbonLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Fujian Yuanli Active CarbonLtd's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Fujian Yuanli Active CarbonLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Fujian Yuanli Active CarbonLtd that you should be aware of.

You might be able to find a better investment than Fujian Yuanli Active CarbonLtd. 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.