Anhui Genuine NewMaterials Co.,Ltd. (SHSE:603429) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 44% share price drop.

Although its price has dipped substantially, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may still consider Anhui Genuine NewMaterialsLtd as an attractive investment with its 18.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Anhui Genuine NewMaterialsLtd recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, 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?

Anhui Genuine NewMaterialsLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 32% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 42% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Anhui Genuine NewMaterialsLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Anhui Genuine NewMaterialsLtd's P/E

Anhui Genuine NewMaterialsLtd's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Anhui Genuine NewMaterialsLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Anhui Genuine NewMaterialsLtd with six simple checks on some of these key factors.

If you're unsure about the strength of Anhui Genuine NewMaterialsLtd'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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