Investors Aren't Buying Beijing Jingneng Power Co., Ltd.'s (SHSE:600578) Earnings

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 33x, you may consider Beijing Jingneng Power Co., Ltd. (SHSE:600578) as an attractive investment with its 16.7x P/E ratio. 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 Beijing Jingneng Power as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Beijing Jingneng Power

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Is There Any Growth For Beijing Jingneng Power?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 130% last year. The strong recent performance means it was also able to grow EPS by 440% 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 10% per annum as estimated by the two analysts watching the company. With the market predicted to deliver 19% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Beijing Jingneng Power is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Beijing Jingneng 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.

As we suspected, our examination of Beijing Jingneng Power's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Beijing Jingneng Power (1 can't be ignored!) 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.

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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.