Fujian Mindong Electric Power Limited Company (SZSE:000993) shares have had a really impressive month, gaining 25% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.0% in the last twelve months.

In spite of the firm bounce in price, Fujian Mindong Electric Power Limited's price-to-earnings (or "P/E") ratio of 14.7x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Fujian Mindong Electric Power Limited 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 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.

How Is Fujian Mindong Electric Power Limited's Growth Trending?

Fujian Mindong Electric Power Limited'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.

Taking a look back first, we see that the company grew earnings per share by an impressive 44% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 41% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Fujian Mindong Electric Power Limited's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Fujian Mindong Electric Power Limited's P/E

Shares in Fujian Mindong Electric Power Limited are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Fujian Mindong Electric Power Limited revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Fujian Mindong Electric Power Limited you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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