Qingdao Daneng Environmental Protection Equipment Co., Ltd. (SHSE:688501) Stock Rockets 26% But Many Are Still Ignoring The Company

Qingdao Daneng Environmental Protection Equipment Co., Ltd. (SHSE:688501) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

In spite of the firm bounce in price, Qingdao Daneng Environmental Protection Equipment's price-to-earnings (or "P/E") ratio of 21.7x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 31x and even P/E's above 56x are quite common. 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 pleasing for Qingdao Daneng Environmental Protection Equipment as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Qingdao Daneng Environmental Protection Equipment

Keen to find out how analysts think Qingdao Daneng Environmental Protection Equipment's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Qingdao Daneng Environmental Protection Equipment?

Qingdao Daneng Environmental Protection Equipment's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. The latest three year period has also seen an excellent 37% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 92% as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 42%, which is noticeably less attractive.

With this information, we find it odd that Qingdao Daneng Environmental Protection Equipment is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Qingdao Daneng Environmental Protection Equipment's P/E?

Despite Qingdao Daneng Environmental Protection Equipment's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Qingdao Daneng Environmental Protection Equipment currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Qingdao Daneng Environmental Protection Equipment with six simple checks.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.