When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider Ningxia Jiaze Renewables Corporation Limited (SHSE:601619) as a highly attractive investment with its 10.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings that are retreating more than the market's of late, Ningxia Jiaze Renewables has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Ningxia Jiaze Renewables

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Ningxia Jiaze Renewables' is when the company's growth is on track to lag the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.7%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 155% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 60% over the next year. With the market only predicted to deliver 42%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Ningxia Jiaze Renewables is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Ningxia Jiaze Renewables' P/E?

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.

We've established that Ningxia Jiaze Renewables currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Ningxia Jiaze Renewables has 3 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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