When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 12x, you may consider China Oilfield Services Limited (HKG:2883) as an attractive investment with its 8.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent earnings growth for China Oilfield Services has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for China Oilfield Services

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Oilfield Services.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, China Oilfield Services would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 4.4%. Pleasingly, EPS has also lifted 678% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 13% each year over the next three years. That's shaping up to be similar to the 14% per annum growth forecast for the broader market.

With this information, we find it odd that China Oilfield Services is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On China Oilfield Services' 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 China Oilfield Services currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with China Oilfield Services, and understanding should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.