Fujian Yuanli Active Carbon Co.,Ltd. (SZSE:300174) shareholders have had their patience rewarded with a 36% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may still consider Fujian Yuanli Active CarbonLtd as an attractive investment with its 22.9x 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 limited.

Recent times have been pleasing for Fujian Yuanli Active CarbonLtd as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

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

In order to justify its P/E ratio, Fujian Yuanli Active CarbonLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. The latest three year period has also seen an excellent 97% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 18% per annum as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is not materially different.

With this information, we find it odd that Fujian Yuanli Active CarbonLtd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Fujian Yuanli Active CarbonLtd's P/E

Fujian Yuanli Active CarbonLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Fujian Yuanli Active CarbonLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Fujian Yuanli Active CarbonLtd that you should be aware of.

If you're unsure about the strength of Fujian Yuanli Active CarbonLtd'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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