Bingshan Refrigeration & Heat Transfer Technologies Co., Ltd.'s (SZSE:000530) 25% 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 25% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

After such a large jump in price, Bingshan Refrigeration & Heat Transfer Technologies may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 75x, since almost half of all companies in China have P/E ratios under 36x and even P/E's lower than 21x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Bingshan Refrigeration & Heat Transfer Technologies as its earnings have been falling quicker than most other companies. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Bingshan Refrigeration & Heat Transfer Technologies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Bingshan Refrigeration & Heat Transfer Technologies.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Bingshan Refrigeration & Heat Transfer Technologies' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune 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.

Looking ahead now, EPS is anticipated to climb by 240% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 38%, which is noticeably less attractive.

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 Bottom Line On Bingshan Refrigeration & Heat Transfer Technologies' P/E

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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Bingshan Refrigeration & Heat Transfer Technologies that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.