Tianjin LVYIN Landscape and Ecology Construction Co., Ltd (SZSE:002887) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Although its price has surged higher, Tianjin LVYIN Landscape and Ecology Construction's price-to-earnings (or "P/E") ratio of 19.8x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 33x and even P/E's above 61x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Tianjin LVYIN Landscape and Ecology Construction 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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Growth For Tianjin LVYIN Landscape and Ecology Construction?

There's an inherent assumption that a company should underperform the market for P/E ratios like Tianjin LVYIN Landscape and Ecology Construction's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 29%. The last three years don't look nice either as the company has shrunk EPS by 59% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 38% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is not materially different.

With this information, we find it odd that Tianjin LVYIN Landscape and Ecology Construction is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

Tianjin LVYIN Landscape and Ecology Construction's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Tianjin LVYIN Landscape and Ecology Construction's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Tianjin LVYIN Landscape and Ecology Construction is showing 1 warning sign in our investment analysis, you should know about.

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 low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.