Insufficient Growth At TCL Zhonghuan Renewable Energy Technology Co.,Ltd. (SZSE:002129) Hampers Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 32x, you may consider TCL Zhonghuan Renewable Energy Technology Co.,Ltd. (SZSE:002129) as a highly attractive investment with its 6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for TCL Zhonghuan Renewable Energy TechnologyLtd as its earnings have been rising faster than most other companies. 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.

View our latest analysis for TCL Zhonghuan Renewable Energy TechnologyLtd

Want the full picture on analyst estimates for the company? Then our free report on TCL Zhonghuan Renewable Energy TechnologyLtd will help you uncover what's on the horizon.

How Is TCL Zhonghuan Renewable Energy TechnologyLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as TCL Zhonghuan Renewable Energy TechnologyLtd's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 28% last year. The latest three year period has also seen an excellent 573% overall rise in EPS, aided by its short-term performance. 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 7.4% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 20% per year growth forecast for the broader market.

With this information, we can see why TCL Zhonghuan Renewable Energy TechnologyLtd 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.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of TCL Zhonghuan Renewable Energy TechnologyLtd'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.

You need to take note of risks, for example - TCL Zhonghuan Renewable Energy TechnologyLtd has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

You might be able to find a better investment than TCL Zhonghuan Renewable Energy TechnologyLtd. 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.