Zhongmin Energy Co., Ltd.'s (SHSE:600163) Shares Lagging The Market But So Is The Business

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Zhongmin Energy Co., Ltd. (SHSE:600163) as a highly attractive investment with its 14.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Zhongmin Energy's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

See our latest analysis for Zhongmin Energy

Keen to find out how analysts think Zhongmin Energy's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Zhongmin Energy's Growth Trending?

In order to justify its P/E ratio, Zhongmin Energy would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 8.1% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 25% per annum growth forecast for the broader market.

In light of this, it's understandable that Zhongmin Energy's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zhongmin Energy's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Zhongmin Energy'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Zhongmin Energy.

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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