Investors Aren't Buying CECEP Solar Energy Co.,Ltd.'s (SZSE:000591) Earnings

With a price-to-earnings (or "P/E") ratio of 12.6x CECEP Solar Energy Co.,Ltd. (SZSE:000591) may be sending very bullish signals at the moment, given that almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 61x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings that are retreating more than the market's of late, CECEP Solar EnergyLtd has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for CECEP Solar EnergyLtd

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

Is There Any Growth For CECEP Solar EnergyLtd?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.9%. The last three years don't look nice either as the company has shrunk EPS by 7.7% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 11% per year during the coming three years according to the one analyst following the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

With this information, we can see why CECEP Solar EnergyLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From CECEP Solar EnergyLtd'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.

We've established that CECEP Solar EnergyLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for CECEP Solar EnergyLtd you should be aware of, and 1 of them makes us a bit uncomfortable.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.