Bingshan Refrigeration & Heat Transfer Technologies Co., Ltd.'s (SZSE:000530) 41% Jump Shows Its Popularity With Investors

Despite an already strong run, Bingshan Refrigeration & Heat Transfer Technologies Co., Ltd. (SZSE:000530) shares have been powering on, with a gain of 41% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 8.2% isn't as impressive.

Following the firm bounce in price, Bingshan Refrigeration & Heat Transfer Technologies' price-to-earnings (or "P/E") ratio of 69.7x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 36x and even P/E's below 21x 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 so lofty.

With earnings that are retreating more than the market's of late, Bingshan Refrigeration & Heat Transfer Technologies has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Bingshan Refrigeration & Heat Transfer Technologies

Keen to find out how analysts think Bingshan Refrigeration & Heat Transfer Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Bingshan Refrigeration & Heat Transfer Technologies' Growth Trending?

In order to justify its P/E ratio, Bingshan Refrigeration & Heat Transfer Technologies would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.2%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 240% over the next year. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.

With this information, we can see why Bingshan Refrigeration & Heat Transfer Technologies is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Bingshan Refrigeration & Heat Transfer Technologies have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Bingshan Refrigeration & Heat Transfer Technologies maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Bingshan Refrigeration & Heat Transfer Technologies, and understanding should be part of your investment process.

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.