When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may consider Zhejiang Provincial New Energy Investment Group Co., Ltd. (SHSE:600032) as an attractive investment with its 27.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Zhejiang Provincial New Energy Investment Group certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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.

How Is Zhejiang Provincial New Energy Investment Group's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Zhejiang Provincial New Energy Investment Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 40%. As a result, it also grew EPS by 8.3% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 74% over the next year. With the market only predicted to deliver 42%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Zhejiang Provincial New Energy Investment Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Zhejiang Provincial New Energy Investment Group's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Zhejiang Provincial New Energy Investment Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Zhejiang Provincial New Energy Investment Group (including 1 which shouldn't be ignored).

You might be able to find a better investment than Zhejiang Provincial New Energy Investment Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.