Lacklustre Performance Is Driving CECEP Solar Energy Co.,Ltd.'s (SZSE:000591) Low P/E

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider CECEP Solar Energy Co.,Ltd. (SZSE:000591) as a highly attractive investment with its 12x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

While the market has experienced earnings growth lately, CECEP Solar EnergyLtd's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for CECEP Solar EnergyLtd

Want the full picture on analyst estimates for the company? Then our free report on CECEP Solar EnergyLtd will help you uncover what's on the horizon.

How Is CECEP Solar EnergyLtd's Growth Trending?

In order to justify its P/E ratio, CECEP Solar EnergyLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.1%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the one analyst watching the company. With the market predicted to deliver 25% growth each year, the company is positioned for a weaker earnings result.

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.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for CECEP Solar EnergyLtd (1 makes us a bit uncomfortable!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.

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