Optimistic Investors Push Qinhuangdao Tianqin Equipment Manufacturing Co.,Ltd. (SZSE:300922) Shares Up 26% But Growth Is Lacking

Despite an already strong run, Qinhuangdao Tianqin Equipment Manufacturing Co.,Ltd. (SZSE:300922) shares have been powering on, with a gain of 26% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

After such a large jump in price, Qinhuangdao Tianqin Equipment ManufacturingLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 71.8x, since almost half of all companies in China have P/E ratios under 32x and even P/E's lower than 20x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's exceedingly strong of late, Qinhuangdao Tianqin Equipment ManufacturingLtd has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Qinhuangdao Tianqin Equipment ManufacturingLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Qinhuangdao Tianqin Equipment ManufacturingLtd's earnings, revenue and cash flow.

How Is Qinhuangdao Tianqin Equipment ManufacturingLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Qinhuangdao Tianqin Equipment ManufacturingLtd's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 39%. Still, incredibly EPS has fallen 62% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 38% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Qinhuangdao Tianqin Equipment ManufacturingLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Qinhuangdao Tianqin Equipment ManufacturingLtd's P/E?

Shares in Qinhuangdao Tianqin Equipment ManufacturingLtd have built up some good momentum lately, which has really inflated its P/E. 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 Qinhuangdao Tianqin Equipment ManufacturingLtd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Qinhuangdao Tianqin Equipment ManufacturingLtd (1 is a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Qinhuangdao Tianqin Equipment ManufacturingLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.