CECEP Guozhen Environmental Protection Technology Co., Ltd.'s (SZSE:300388) Price Is Right But Growth Is Lacking After Shares Rocket 28%

Despite an already strong run, CECEP Guozhen Environmental Protection Technology Co., Ltd. (SZSE:300388) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

Although its price has surged higher, CECEP Guozhen Environmental Protection Technology may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.5x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 71x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

CECEP Guozhen Environmental Protection Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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

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

What Are Growth Metrics Telling Us About The Low P/E?

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 4.4%. The latest three year period has also seen a 22% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 12% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 39% growth forecast for the broader market.

In light of this, it's understandable that CECEP Guozhen Environmental Protection Technology's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Shares in CECEP Guozhen Environmental Protection Technology are going to need a lot more upward momentum to get the company's P/E out of its slump. 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. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with CECEP Guozhen Environmental Protection Technology (at least 1 which can't be ignored), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.