Benign Growth For An Hui Wenergy Company Limited (SZSE:000543) Underpins Its Share Price

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider An Hui Wenergy Company Limited (SZSE:000543) as a highly attractive investment with its 9.1x 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.

An Hui Wenergy certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 An Hui Wenergy

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

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like An Hui Wenergy's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 24% during the coming year according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

In light of this, it's understandable that An Hui Wenergy's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On An Hui Wenergy'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 An Hui Wenergy'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for An Hui Wenergy you should be aware of, and 1 of them can't be ignored.

If these risks are making you reconsider your opinion on An Hui Wenergy, 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.