China Gas Industry Investment Holdings Co. Ltd. (HKG:1940) Looks Inexpensive After Falling 26% But Perhaps Not Attractive Enough

The China Gas Industry Investment Holdings Co. Ltd. (HKG:1940) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 22% in the last year.

In spite of the heavy fall in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may still consider China Gas Industry Investment Holdings as a highly attractive investment with its 3.9x 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.

Recent times have been quite advantageous for China Gas Industry Investment Holdings as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for China Gas Industry Investment Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Gas Industry Investment Holdings will help you shine a light on its historical performance.

How Is China Gas Industry Investment Holdings' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like China Gas Industry Investment Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 158% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why China Gas Industry Investment Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On China Gas Industry Investment Holdings' P/E

China Gas Industry Investment Holdings' P/E looks about as weak as its stock price lately. 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.

We've established that China Gas Industry Investment Holdings maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 the recent medium-term 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 3 warning signs for China Gas Industry Investment Holdings (1 makes us a bit uncomfortable!) that you need to be mindful of.

Of course, you might also be able to find a better stock than China Gas Industry Investment Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.