The Zhejiang Fuchunjiang Environmental Thermoelectric Co.,LTD. (SZSE:002479) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Following the heavy fall in price, Zhejiang Fuchunjiang Environmental ThermoelectricLTD may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12x, since almost half of all companies in China have P/E ratios greater than 27x and even P/E's higher than 48x are not unusual. 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.

Recent times have been quite advantageous for Zhejiang Fuchunjiang Environmental ThermoelectricLTD as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

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

Taking a look back first, we see that the company grew earnings per share by an impressive 59% last year. Still, incredibly EPS has fallen 15% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 41% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Zhejiang Fuchunjiang Environmental ThermoelectricLTD is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Zhejiang Fuchunjiang Environmental ThermoelectricLTD's P/E

Having almost fallen off a cliff, Zhejiang Fuchunjiang Environmental ThermoelectricLTD's share price has pulled its P/E way down as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Zhejiang Fuchunjiang Environmental ThermoelectricLTD revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Zhejiang Fuchunjiang Environmental ThermoelectricLTD you should be aware of.

Of course, you might also be able to find a better stock than Zhejiang Fuchunjiang Environmental ThermoelectricLTD. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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