Beijing Jingneng Clean Energy Co., Limited's (HKG:579) Prospects Need A Boost To Lift Shares

With a price-to-earnings (or "P/E") ratio of 6.2x Beijing Jingneng Clean Energy Co., Limited (HKG:579) may be sending very bullish signals at the moment, given that almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 26x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Beijing Jingneng Clean Energy's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

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Is There Any Growth For Beijing Jingneng Clean Energy?

Beijing Jingneng Clean Energy's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Regardless, EPS has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 6.9% per year over the next three years. That's shaping up to be materially lower than the 14% per year growth forecast for the broader market.

With this information, we can see why Beijing Jingneng Clean Energy 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 Beijing Jingneng Clean Energy's P/E

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 Beijing Jingneng Clean Energy 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Beijing Jingneng Clean Energy is showing 2 warning signs in our investment analysis, and 1 of those is significant.

If you're unsure about the strength of Beijing Jingneng Clean Energy'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.