When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 9x, you may consider China Coal Energy Company Limited (HKG:1898) as an attractive investment with its 5.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

China Coal Energy certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is China Coal Energy's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as China Coal Energy's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 4.6% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 56% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 1.4% per annum as estimated by the eight analysts watching the company. That's not great when the rest of the market is expected to grow by 12% per annum.

In light of this, it's understandable that China Coal Energy's P/E would sit below the majority of other companies. 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 the weak outlook is weighing down the shares.

The Bottom Line On China Coal Energy'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.

As we suspected, our examination of China Coal Energy's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for China Coal Energy (1 makes us a bit uncomfortable!) that we have uncovered.

If these risks are making you reconsider your opinion on China Coal Energy, 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.