The Market Doesn't Like What It Sees From CECEP Solar Energy Co.,Ltd.'s (SZSE:000591) Earnings Yet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider CECEP Solar Energy Co.,Ltd. (SZSE:000591) as a highly attractive investment with its 12.6x 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.

CECEP Solar EnergyLtd has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for CECEP Solar EnergyLtd

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as CECEP Solar EnergyLtd's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. As a result, earnings from three years ago have also fallen 12% overall. 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 25% during the coming year according to the one analyst following the company. That's shaping up to be materially lower than the 38% 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?

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.

As we suspected, our examination of CECEP Solar EnergyLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Before you take the next step, you should know about the 2 warning signs for CECEP Solar EnergyLtd (1 doesn't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on CECEP Solar EnergyLtd, 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.