Hangzhou Fortune Gas Cryogenic Group Co., Ltd.'s (SHSE:603173) Shares Bounce 28% But Its Business Still Trails The Market

Hangzhou Fortune Gas Cryogenic Group Co., Ltd. (SHSE:603173) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Hangzhou Fortune Gas Cryogenic Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.3x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 72x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Hangzhou Fortune Gas Cryogenic Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Hangzhou Fortune Gas Cryogenic Group

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How Is Hangzhou Fortune Gas Cryogenic Group's Growth Trending?

In order to justify its P/E ratio, Hangzhou Fortune Gas Cryogenic Group would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 36%. EPS has also lifted 20% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 41% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Hangzhou Fortune Gas Cryogenic Group'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 Hangzhou Fortune Gas Cryogenic Group's P/E

Shares in Hangzhou Fortune Gas Cryogenic Group 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 Hangzhou Fortune Gas Cryogenic Group 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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Hangzhou Fortune Gas Cryogenic Group with six simple checks.

Of course, you might also be able to find a better stock than Hangzhou Fortune Gas Cryogenic Group. 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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