When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 36x, you may consider Guangxi Huaxi Nonferrous Metal Co.,Ltd (SHSE:600301) as an attractive investment with its 18.4x 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.

Guangxi Huaxi Nonferrous MetalLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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.

How Is Guangxi Huaxi Nonferrous MetalLtd's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Guangxi Huaxi Nonferrous MetalLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 127%. The latest three year period has also seen an excellent 886% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 67% during the coming year according to the one analyst following the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Guangxi Huaxi Nonferrous MetalLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Guangxi Huaxi Nonferrous MetalLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Guangxi Huaxi Nonferrous MetalLtd with six simple checks on some of these key factors.

You might be able to find a better investment than Guangxi Huaxi Nonferrous MetalLtd. 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.