The Market Doesn't Like What It Sees From Jilin Electric Power Co.,Ltd.'s (SZSE:000875) Earnings Yet

When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may consider Jilin Electric Power Co.,Ltd. (SZSE:000875) as a highly attractive investment with its 13.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Jilin Electric PowerLtd has been doing quite well of late. 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 Jilin Electric PowerLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jilin Electric PowerLtd.

How Is Jilin Electric PowerLtd's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 38% last year. EPS has also lifted 23% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 15% each year over the next three years. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

In light of this, it's understandable that Jilin Electric PowerLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Jilin Electric PowerLtd'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.

As we suspected, our examination of Jilin Electric PowerLtd'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.

Before you settle on your opinion, we've discovered 2 warning signs for Jilin Electric PowerLtd (1 can't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Jilin Electric PowerLtd, 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.