Optimistic Investors Push TianJin JinRong TianYu Precision Machinery Inc. (SZSE:300988) Shares Up 27% But Growth Is Lacking

TianJin JinRong TianYu Precision Machinery Inc. (SZSE:300988) shares have had a really impressive month, gaining 27% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.5% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that TianJin JinRong TianYu Precision Machinery's price-to-earnings (or "P/E") ratio of 32.6x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 34x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

For instance, TianJin JinRong TianYu Precision Machinery's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for TianJin JinRong TianYu Precision Machinery

Although there are no analyst estimates available for TianJin JinRong TianYu Precision Machinery, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

TianJin JinRong TianYu Precision Machinery's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 4.7%. The last three years don't look nice either as the company has shrunk EPS by 16% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 37% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that TianJin JinRong TianYu Precision Machinery is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From TianJin JinRong TianYu Precision Machinery's P/E?

Its shares have lifted substantially and now TianJin JinRong TianYu Precision Machinery's P/E is also back up to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that TianJin JinRong TianYu Precision Machinery currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You need to take note of risks, for example - TianJin JinRong TianYu Precision Machinery has 2 warning signs (and 1 which is concerning) we think you should know about.

If you're unsure about the strength of TianJin JinRong TianYu Precision Machinery'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.