Anhui Korrun Co., Ltd.'s (SZSE:300577) Share Price Boosted 34% But Its Business Prospects Need A Lift Too

Anhui Korrun Co., Ltd. (SZSE:300577) shares have continued their recent momentum with a 34% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 98%.

Although its price has surged higher, Anhui Korrun may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 22x, since almost half of all companies in China have P/E ratios greater than 38x and even P/E's higher than 75x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Anhui Korrun 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.

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How Is Anhui Korrun's Growth Trending?

In order to justify its P/E ratio, Anhui Korrun would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 207% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 60% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 22% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

With this information, we can see why Anhui Korrun 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 Anhui Korrun's P/E

Despite Anhui Korrun's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Anhui Korrun maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Anhui Korrun with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Anhui Korrun, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.