When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may consider Gansu Engineering Consulting Group Co., Ltd. (SZSE:000779) as an attractive investment with its 15.1x 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.

Gansu Engineering Consulting Group's negative earnings growth of late has neither been better nor worse than most other companies. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. At the very least, you'd be hoping that earnings don't fall off a cliff if your plan is to pick up some stock while it's out of favour.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Gansu Engineering Consulting Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 1.9% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 28% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 1.9% during the coming year according to the sole analyst following the company. With the market predicted to deliver 41% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Gansu Engineering Consulting Group is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Gansu Engineering Consulting Group's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Gansu Engineering Consulting Group'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.

It is also worth noting that we have found 2 warning signs for Gansu Engineering Consulting Group (1 is a bit concerning!) that you need to take into consideration.

You might be able to find a better investment than Gansu Engineering Consulting Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.