Xinjiang Xintai Natural Gas Co., Ltd. (SHSE:603393) Screens Well But There Might Be A Catch

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Xinjiang Xintai Natural Gas Co., Ltd. (SHSE:603393) as an attractive investment with its 15.6x 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 advantageous for Xinjiang Xintai Natural Gas as its earnings have been rising faster 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Xinjiang Xintai Natural Gas

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Xinjiang Xintai Natural Gas.

Is There Any Growth For Xinjiang Xintai Natural Gas?

The only time you'd be truly comfortable seeing a P/E as low as Xinjiang Xintai Natural Gas' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. This was backed up an excellent period prior to see EPS up by 161% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 22% per year during the coming three years according to the dual analysts following the company. With the market predicted to deliver 25% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Xinjiang Xintai Natural Gas 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 Xinjiang Xintai Natural Gas' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Xinjiang Xintai Natural Gas' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Xinjiang Xintai Natural Gas.

If these risks are making you reconsider your opinion on Xinjiang Xintai Natural Gas, 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.

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