Investors Appear Satisfied With Zhejiang Provincial New Energy Investment Group Co., Ltd.'s (SHSE:600032) Prospects

Zhejiang Provincial New Energy Investment Group Co., Ltd.'s (SHSE:600032) price-to-earnings (or "P/E") ratio of 38.2x might make it look like a sell right now compared to the market in China, where around half of the companies have P/E ratios below 29x and even P/E's below 18x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Zhejiang Provincial New Energy Investment Group has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Zhejiang Provincial New Energy Investment Group

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How Is Zhejiang Provincial New Energy Investment Group's Growth Trending?

In order to justify its P/E ratio, Zhejiang Provincial New Energy Investment Group would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 56% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 17% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 82% during the coming year according to the only analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 41%, which is noticeably less attractive.

In light of this, it's understandable that Zhejiang Provincial New Energy Investment Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Zhejiang Provincial New Energy Investment Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 4 warning signs for Zhejiang Provincial New Energy Investment Group (1 is a bit unpleasant!) that you should be aware of.

You might be able to find a better investment than Zhejiang Provincial New Energy Investment Group. 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.