When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may consider China Three Gorges Renewables (Group) Co.,Ltd. (SHSE:600905) as an attractive investment with its 18.6x 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.

China Three Gorges Renewables (Group)Ltd hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 China Three Gorges Renewables (Group)Ltd's Growth Trending?

In order to justify its P/E ratio, China Three Gorges Renewables (Group)Ltd would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the twelve analysts watching the company. That's shaping up to be materially lower than the 25% per year growth forecast for the broader market.

With this information, we can see why China Three Gorges Renewables (Group)Ltd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From China Three Gorges Renewables (Group)Ltd's 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.

As we suspected, our examination of China Three Gorges Renewables (Group)Ltd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - China Three Gorges Renewables (Group)Ltd has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

You might be able to find a better investment than China Three Gorges Renewables (Group)Ltd. 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.