Wuhan Tianyuan Environmental Protection Co.,LTD's (SZSE:301127) Shares Bounce 32% But Its Business Still Trails The Market

Wuhan Tianyuan Environmental Protection Co.,LTD (SZSE:301127) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 80%.

In spite of the firm bounce in price, Wuhan Tianyuan Environmental ProtectionLTD may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.1x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Wuhan Tianyuan Environmental ProtectionLTD over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Wuhan Tianyuan Environmental ProtectionLTD

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Wuhan Tianyuan Environmental ProtectionLTD will help you shine a light on its historical performance.

How Is Wuhan Tianyuan Environmental ProtectionLTD's Growth Trending?

Wuhan Tianyuan Environmental ProtectionLTD's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The latest three year period has also seen an excellent 41% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 39% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Wuhan Tianyuan Environmental ProtectionLTD is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite Wuhan Tianyuan Environmental ProtectionLTD's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Wuhan Tianyuan Environmental ProtectionLTD maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Wuhan Tianyuan Environmental ProtectionLTD (including 1 which is concerning).

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.