Longjian Road&Bridge Co.,Ltd's (SHSE:600853) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Despite an already strong run, Longjian Road&Bridge Co.,Ltd (SHSE:600853) shares have been powering on, with a gain of 28% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 6.5% isn't as impressive.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 38x, you may still consider Longjian Road&BridgeLtd as a highly attractive investment with its 12.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

The earnings growth achieved at Longjian Road&BridgeLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Longjian Road&BridgeLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Longjian Road&BridgeLtd's earnings, revenue and cash flow.

How Is Longjian Road&BridgeLtd's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Longjian Road&BridgeLtd's to be considered reasonable.

Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. The latest three year period has also seen an excellent 67% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job 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 understandable that Longjian Road&BridgeLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Longjian Road&BridgeLtd's P/E

Shares in Longjian Road&BridgeLtd are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

As we suspected, our examination of Longjian Road&BridgeLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Longjian Road&BridgeLtd (including 1 which is significant).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.