When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 27x, you may consider China Nonferrous Metal Industry's Foreign Engineering and Construction Co.,Ltd. (SZSE:000758) as an attractive investment with its 21.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Does Growth Match The Low P/E?

China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd'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.

If we review the last year of earnings growth, the company posted a terrific increase of 130%. Pleasingly, EPS has also lifted 461% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd'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.

Our examination of China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on China Nonferrous Metal Industry's Foreign Engineering and ConstructionLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.