Jiangxi JDL Environmental Protection Co., Ltd.'s (SHSE:688057) price-to-earnings (or "P/E") ratio of 12.8x might make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 32x and even P/E's above 56x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

As an illustration, earnings have deteriorated at Jiangxi JDL Environmental Protection over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Jiangxi JDL Environmental Protection

Is There Any Growth For Jiangxi JDL Environmental Protection?

The only time you'd be truly comfortable seeing a P/E as depressed as Jiangxi JDL Environmental Protection's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 17% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Comparing that to the market, which is predicted to deliver 38% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Jiangxi JDL Environmental Protection is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Jiangxi JDL Environmental Protection's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Jiangxi JDL Environmental Protection maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Jiangxi JDL Environmental Protection you should be aware of, and 1 of them is concerning.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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.