Market Cool On Shanghai Electric Power Co., Ltd.'s (SHSE:600021) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Shanghai Electric Power Co., Ltd. (SHSE:600021) as an attractive investment with its 16.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Shanghai Electric Power 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 you 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.

Check out our latest analysis for Shanghai Electric Power

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shanghai Electric Power.

Is There Any Growth For Shanghai Electric Power?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shanghai Electric Power's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 361% gain to the company's bottom line. The latest three year period has also seen an excellent 63% 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.

Looking ahead now, EPS is anticipated to climb by 90% during the coming year according to the dual 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 Shanghai Electric Power 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.

What We Can Learn From Shanghai Electric Power'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 Shanghai Electric Power currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Shanghai Electric Power is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

You might be able to find a better investment than Shanghai Electric Power. 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.