When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may consider Jiangxi Copper Company Limited (HKG:358) as an attractive investment with its 5.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Jiangxi Copper certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Jiangxi Copper

Is There Any Growth For Jiangxi Copper?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.5% last year. The latest three year period has also seen an excellent 224% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 3.6% over the next year. That's shaping up to be materially lower than the 22% growth forecast for the broader market.

In light of this, it's understandable that Jiangxi Copper's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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 Jiangxi Copper'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 settle on your opinion, we've discovered 1 warning sign for Jiangxi Copper that you should be aware of.

Of course, you might also be able to find a better stock than Jiangxi Copper. 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.