When close to half the companies in China have price-to-earnings ratios (or "P/E's") above 34x, you may consider Ganfeng Lithium Group Co., Ltd. (SZSE:002460) as a highly attractive investment with its 7.3x 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 so limited.
Ganfeng Lithium Group has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
View our latest analysis for Ganfeng Lithium Group
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Ganfeng Lithium Group would need to produce anemic growth that's substantially trailing the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. Even so, admirably EPS has lifted 2,803% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 3.0% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 22% per year growth forecast for the broader market.
In light of this, it's understandable that Ganfeng Lithium Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Ganfeng Lithium Group's P/E?
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Ganfeng Lithium Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Having said that, be aware Ganfeng Lithium Group is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored.
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.
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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.