When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may consider Anhui Wanwei Updated High-Tech Material Industry Co.,Ltd (SHSE:600063) as an attractive investment with its 19.3x 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.

Anhui Wanwei Updated High-Tech Material IndustryLtd has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Anhui Wanwei Updated High-Tech Material IndustryLtd

How Is Anhui Wanwei Updated High-Tech Material IndustryLtd's Growth Trending?

In order to justify its P/E ratio, Anhui Wanwei Updated High-Tech Material IndustryLtd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 71% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 4.8% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 56% over the next year. That's shaping up to be materially higher than the 44% growth forecast for the broader market.

In light of this, it's peculiar that Anhui Wanwei Updated High-Tech Material IndustryLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Anhui Wanwei Updated High-Tech Material IndustryLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Anhui Wanwei Updated High-Tech Material IndustryLtd.

If these risks are making you reconsider your opinion on Anhui Wanwei Updated High-Tech Material IndustryLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.