Yunnan Copper Co.,Ltd's (SZSE:000878) price-to-earnings (or "P/E") ratio of 11.8x 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 35x and even P/E's above 63x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate Yunnan CopperLtd's and the market's retreating earnings lately. One possibility is that the P/E is low because investors think the company's earnings may begin to slide even faster. You'd much rather the company wasn't bleeding earnings if you still believe in the business. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.

Check out our latest analysis for Yunnan CopperLtd

How Is Yunnan CopperLtd's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 214% overall rise in EPS, in spite of its unsatisfying short-term performance. 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 14% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to expand by 44%, which is noticeably more attractive.

With this information, we can see why Yunnan CopperLtd is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Yunnan CopperLtd's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Yunnan CopperLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Yunnan CopperLtd that you should be aware of.

If you're unsure about the strength of Yunnan CopperLtd'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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