Cautious Investors Not Rewarding Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd.'s (SHSE:600116) Performance Completely

Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd.'s (SHSE:600116) price-to-earnings (or "P/E") ratio of 24.3x might make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 28x and even P/E's above 52x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Chongqing Three Gorges Water Conservancy and Electric Power certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Chongqing Three Gorges Water Conservancy and Electric Power

Want the full picture on analyst estimates for the company? Then our free report on Chongqing Three Gorges Water Conservancy and Electric Power will help you uncover what's on the horizon.

How Is Chongqing Three Gorges Water Conservancy and Electric Power's Growth Trending?

Chongqing Three Gorges Water Conservancy and Electric Power's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 30% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 23% each year over the next three years. With the market predicted to deliver 25% growth each year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Chongqing Three Gorges Water Conservancy and Electric Power is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Chongqing Three Gorges Water Conservancy and Electric Power's P/E?

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.

Our examination of Chongqing Three Gorges Water Conservancy and Electric Power's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 3 warning signs for Chongqing Three Gorges Water Conservancy and Electric Power (1 is a bit concerning!) that we have uncovered.

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.

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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.

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