China Three Gorges Renewables (Group) Co.,Ltd. (SHSE:600905) Might Not Be As Mispriced As It Looks

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider China Three Gorges Renewables (Group) Co.,Ltd. (SHSE:600905) as an attractive investment with its 18.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate China Three Gorges Renewables (Group)Ltd's and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

View our latest analysis for China Three Gorges Renewables (Group)Ltd

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How Is China Three Gorges Renewables (Group)Ltd's Growth Trending?

China Three Gorges Renewables (Group)Ltd'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 a decent 2.6% gain to the company's bottom line. The latest three year period has also seen an excellent 42% overall rise in EPS, aided somewhat by its short-term performance. 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 ten analysts watching the company. That's shaping up to be similar to the 21% per annum growth forecast for the broader market.

With this information, we find it odd that China Three Gorges Renewables (Group)Ltd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On China Three Gorges Renewables (Group)Ltd's P/E

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.

Our examination of China Three Gorges Renewables (Group)Ltd'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.

Having said that, be aware China Three Gorges Renewables (Group)Ltd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If these risks are making you reconsider your opinion on China Three Gorges Renewables (Group)Ltd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.