Investors Still Aren't Entirely Convinced By Shandong Sunway Chemical Group Co., Ltd.'s (SZSE:002469) Earnings Despite 57% Price Jump

Despite an already strong run, Shandong Sunway Chemical Group Co., Ltd. (SZSE:002469) shares have been powering on, with a gain of 57% in the last thirty days. The last 30 days bring the annual gain to a very sharp 43%.

Even after such a large jump in price, Shandong Sunway Chemical Group's price-to-earnings (or "P/E") ratio of 24.6x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 37x and even P/E's above 73x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Shandong Sunway Chemical Group has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Shandong Sunway Chemical Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shandong Sunway Chemical Group.

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

The only time you'd be truly comfortable seeing a P/E as low as Shandong Sunway Chemical Group's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. This means it has also seen a slide in earnings over the longer-term as EPS is down 63% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 42% over the next year. With the market predicted to deliver 39% growth , the company is positioned for a comparable earnings result.

With this information, we find it odd that Shandong Sunway Chemical Group is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Despite Shandong Sunway Chemical Group'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.

Our examination of Shandong Sunway Chemical Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Shandong Sunway Chemical Group.

You might be able to find a better investment than Shandong Sunway Chemical Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.