CECEP Guozhen Environmental Protection Technology Co., Ltd. (SZSE:300388) Surges 39% Yet Its Low P/E Is No Reason For Excitement

The CECEP Guozhen Environmental Protection Technology Co., Ltd. (SZSE:300388) share price has done very well over the last month, posting an excellent gain of 39%. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, CECEP Guozhen Environmental Protection Technology's price-to-earnings (or "P/E") ratio of 13.1x might still make it look like a strong buy right now compared to the market in China, where around half of the companies have P/E ratios above 34x and even P/E's above 64x 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 limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, CECEP Guozhen Environmental Protection Technology has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for CECEP Guozhen Environmental Protection Technology

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CECEP Guozhen Environmental Protection Technology.

How Is CECEP Guozhen Environmental Protection Technology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as CECEP Guozhen Environmental Protection Technology's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 4.8%. EPS has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 7.8% per year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to expand by 19% per year, which is noticeably more attractive.

With this information, we can see why CECEP Guozhen Environmental Protection Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On CECEP Guozhen Environmental Protection Technology's P/E

CECEP Guozhen Environmental Protection Technology's recent share price jump still sees its P/E sitting firmly flat on the ground. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of CECEP Guozhen Environmental Protection Technology's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for CECEP Guozhen Environmental Protection Technology (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of CECEP Guozhen Environmental Protection Technology'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.