Anhui Heli Co.,Ltd. (SHSE:600761) Soars 30% But It's A Story Of Risk Vs Reward

Despite an already strong run, Anhui Heli Co.,Ltd. (SHSE:600761) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days bring the annual gain to a very sharp 25%.

Although its price has surged higher, Anhui HeliLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.7x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 53x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Anhui HeliLtd as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Anhui HeliLtd

Want the full picture on analyst estimates for the company? Then our free report on Anhui HeliLtd will help you uncover what's on the horizon.

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

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

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. The latest three year period has also seen an excellent 65% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 19% each year over the next three years. That's shaping up to be similar to the 21% each year growth forecast for the broader market.

With this information, we find it odd that Anhui HeliLtd 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 Final Word

Despite Anhui HeliLtd's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Anhui HeliLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Anhui HeliLtd you should be aware of.

Of course, you might also be able to find a better stock than Anhui HeliLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.