Investors Still Aren't Entirely Convinced By EVE Energy Co., Ltd.'s (SZSE:300014) Earnings Despite 28% Price Jump

EVE Energy Co., Ltd. (SZSE:300014) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.9% over the last year.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 29x, you may still consider EVE Energy as an attractive investment with its 20.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

EVE Energy has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for EVE Energy

Want the full picture on analyst estimates for the company? Then our free report on EVE Energy will help you uncover what's on the horizon.

Is There Any Growth For EVE Energy?

There's an inherent assumption that a company should underperform the market for P/E ratios like EVE Energy's to be considered reasonable.

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 9.0%. Still, the latest three year period has seen an excellent 35% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 22% per annum over the next three years. With the market only predicted to deliver 19% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that EVE Energy'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.

What We Can Learn From EVE Energy's P/E?

EVE Energy's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of EVE Energy's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for EVE Energy 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.