Some Tianjin Motor Dies Co.,Ltd. (SZSE:002510) Shareholders Look For Exit As Shares Take 25% Pounding

Tianjin Motor Dies Co.,Ltd. (SZSE:002510) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 18%.

Even after such a large drop in price, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 33x, you may still consider Tianjin Motor DiesLtd as a stock to avoid entirely with its 57.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Tianjin Motor DiesLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Tianjin Motor DiesLtd

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How Is Tianjin Motor DiesLtd's Growth Trending?

In order to justify its P/E ratio, Tianjin Motor DiesLtd would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 44% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 38% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Tianjin Motor DiesLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Tianjin Motor DiesLtd's P/E

Tianjin Motor DiesLtd's shares may have retreated, but its P/E is still flying high. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Tianjin Motor DiesLtd currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Tianjin Motor DiesLtd is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Tianjin Motor DiesLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.