Chongqing Qin'an M&E PLC. (SHSE:603758) Stock Rockets 33% But Many Are Still Ignoring The Company

Chongqing Qin'an M&E PLC. (SHSE:603758) shares have had a really impressive month, gaining 33% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

Even after such a large jump in price, Chongqing Qin'an M&E may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.4x, since almost half of all companies in China have P/E ratios greater than 35x and even P/E's higher than 67x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Chongqing Qin'an M&E has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Chongqing Qin'an M&E

Want the full picture on analyst estimates for the company? Then our free report on Chongqing Qin'an M&E will help you uncover what's on the horizon.

How Is Chongqing Qin'an M&E's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Chongqing Qin'an M&E's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 53% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 119% as estimated by the one analyst watching the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Chongqing Qin'an M&E's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Chongqing Qin'an M&E's shares building up a head of steam, its P/E still lags most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Chongqing Qin'an M&E currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

It is also worth noting that we have found 3 warning signs for Chongqing Qin'an M&E that you need to take into consideration.

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.