A Piece Of The Puzzle Missing From China Datang Corporation Renewable Power Co., Limited's (HKG:1798) Share Price
When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 12x, you may consider China Datang Corporation Renewable Power Co., Limited (HKG:1798) as an attractive investment with its 8.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
China Datang Corporation Renewable Power could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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.
Check out our latest analysis for China Datang Corporation Renewable Power
Is There Any Growth For China Datang Corporation Renewable Power?
There's an inherent assumption that a company should underperform the market for P/E ratios like China Datang Corporation Renewable Power's to be considered reasonable.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. As a result, earnings from three years ago have also fallen 37% overall. 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 30% each year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 14% per year growth forecast for the broader market.
With this information, we find it odd that China Datang Corporation Renewable Power 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.
What We Can Learn From China Datang Corporation Renewable Power'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 China Datang Corporation Renewable Power'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. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
And what about other risks? Every company has them, and we've spotted 2 warning signs for China Datang Corporation Renewable Power (of which 1 is potentially serious!) you should know about.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.