Market Cool On Zhejiang Provincial New Energy Investment Group Co., Ltd.'s (SHSE:600032) Earnings

With a price-to-earnings (or "P/E") ratio of 25.3x Zhejiang Provincial New Energy Investment Group Co., Ltd. (SHSE:600032) may be sending bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 34x and even P/E's higher than 66x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Zhejiang Provincial New Energy Investment Group as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

Check out our latest analysis for Zhejiang Provincial New Energy Investment Group

Want the full picture on analyst estimates for the company? Then our free report on Zhejiang Provincial New Energy Investment Group will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhejiang Provincial New Energy Investment Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 81% last year. The strong recent performance means it was also able to grow EPS by 64% in total over the last three years. 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 22% per annum as estimated by the lone analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% per annum, which is noticeably less attractive.

With this information, we find it odd that Zhejiang Provincial New Energy Investment Group is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

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.

Our examination of Zhejiang Provincial New Energy Investment Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Zhejiang Provincial New Energy Investment Group (1 is concerning!) that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.