When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may consider Asia-potash International Investment (Guangzhou)Co.,Ltd. (SZSE:000893) 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.

While the market has experienced earnings growth lately, Asia-potash International Investment (Guangzhou)Co.Ltd's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

What Are Growth Metrics Telling Us About The Low P/E?

Asia-potash International Investment (Guangzhou)Co.Ltd'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 frustrating 55% decrease to the company's bottom line. Even so, admirably EPS has lifted 1,003% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Looking ahead now, EPS is anticipated to climb by 30% per year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 25% each year, which is noticeably less attractive.

With this information, we find it odd that Asia-potash International Investment (Guangzhou)Co.Ltd 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.

What We Can Learn From Asia-potash International Investment (Guangzhou)Co.Ltd's P/E?

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 Asia-potash International Investment (Guangzhou)Co.Ltd 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for Asia-potash International Investment (Guangzhou)Co.Ltd (1 is a bit concerning!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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