Tianrun Industry Technology Co., Ltd.'s (SZSE:002283) Shares Leap 28% Yet They're Still Not Telling The Full Story

Tianrun Industry Technology Co., Ltd. (SZSE:002283) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 3.5% isn't as attractive.

Even after such a large jump in price, Tianrun Industry Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.3x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 73x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Tianrun Industry Technology has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Tianrun Industry Technology

Keen to find out how analysts think Tianrun Industry Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Tianrun Industry Technology's Growth Trending?

In order to justify its P/E ratio, Tianrun Industry Technology would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 4.5%. As a result, earnings from three years ago have also fallen 43% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 48% over the next year. That's shaping up to be materially higher than the 39% growth forecast for the broader market.

In light of this, it's peculiar that Tianrun Industry Technology's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Despite Tianrun Industry Technology'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 Tianrun Industry Technology 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Tianrun Industry Technology, and understanding should be part of your investment process.

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.