When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Anhui Jinhe Industrial Co.,Ltd. (SZSE:002597) as a highly attractive investment with its 13x 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.

With earnings that are retreating more than the market's of late, Anhui Jinhe IndustrialLtd has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Anhui Jinhe IndustrialLtd

Is There Any Growth For Anhui Jinhe IndustrialLtd?

In order to justify its P/E ratio, Anhui Jinhe IndustrialLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 48%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 27% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 4.9% over the next year. Meanwhile, the rest of the market is forecast to expand by 44%, which is noticeably more attractive.

With this information, we can see why Anhui Jinhe IndustrialLtd 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 Anhui Jinhe IndustrialLtd'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.

As we suspected, our examination of Anhui Jinhe IndustrialLtd'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Anhui Jinhe IndustrialLtd is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Anhui Jinhe IndustrialLtd. 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.