Investors Still Waiting For A Pull Back In Ning Xia Yin Xing Energy Co.,Ltd (SZSE:000862)

When close to half the companies in China have price-to-earnings ratios (or "P/E's") below 30x, you may consider Ning Xia Yin Xing Energy Co.,Ltd (SZSE:000862) as a stock to potentially avoid with its 36.7x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Ning Xia Yin Xing EnergyLtd over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Ning Xia Yin Xing EnergyLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Ning Xia Yin Xing EnergyLtd will help you shine a light on its historical performance.

Is There Enough Growth For Ning Xia Yin Xing EnergyLtd?

There's an inherent assumption that a company should outperform the market for P/E ratios like Ning Xia Yin Xing EnergyLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 5.3% decrease to the company's bottom line. Even so, admirably EPS has lifted 201% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 39% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Ning Xia Yin Xing EnergyLtd is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Ning Xia Yin Xing EnergyLtd's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Ning Xia Yin Xing EnergyLtd revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Ning Xia Yin Xing EnergyLtd (1 makes us a bit uncomfortable!) that we have uncovered.

If you're unsure about the strength of Ning Xia Yin Xing EnergyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.