China Everbright Environment Group Limited's (HKG:257) Earnings Are Not Doing Enough For Some Investors

China Everbright Environment Group Limited's (HKG:257) price-to-earnings (or "P/E") ratio of 9x might make it look like a buy right now compared to the market in Hong Kong, where around half of the companies have P/E ratios above 13x and even P/E's above 26x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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China Everbright Environment Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for China Everbright Environment Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Everbright Environment Group.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like China Everbright Environment Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. The last three years don't look nice either as the company has shrunk EPS by 45% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 14% per annum, which is noticeably more attractive.

With this information, we can see why China Everbright Environment Group 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 Bottom Line On China Everbright Environment Group's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that China Everbright Environment Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware China Everbright Environment Group is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

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.