Beijing Jingneng Clean Energy Co., Limited (HKG:579) Stock Catapults 27% Though Its Price And Business Still Lag The Market

Beijing Jingneng Clean Energy Co., Limited (HKG:579) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

In spite of the firm bounce in price, Beijing Jingneng Clean Energy's price-to-earnings (or "P/E") ratio of 5.8x might still 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 11x and even P/E's above 23x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Our free stock report includes 2 warning signs investors should be aware of before investing in Beijing Jingneng Clean Energy. Read for free now.

With earnings growth that's superior to most other companies of late, Beijing Jingneng Clean Energy has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Beijing Jingneng Clean Energy

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Beijing Jingneng Clean Energy.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Beijing Jingneng Clean Energy would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.2% last year. The latest three year period has also seen a 23% overall rise in EPS, aided somewhat by its short-term performance. 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 only analyst covering the company suggest earnings should grow by 11% per year over the next three years. With the market predicted to deliver 15% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Beijing Jingneng Clean Energy'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 Beijing Jingneng Clean Energy's P/E

Despite Beijing Jingneng Clean Energy's shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Beijing Jingneng Clean Energy'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Beijing Jingneng Clean Energy (1 is concerning!) that we have uncovered.

You might be able to find a better investment than Beijing Jingneng Clean Energy. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.