Improved Earnings Required Before Anhui Higasket Plastics Co.,Ltd. (SHSE:603150) Stock's 27% Jump Looks Justified

Anhui Higasket Plastics Co.,Ltd. (SHSE:603150) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Even after such a large jump in price, Anhui Higasket PlasticsLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 19x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 72x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Anhui Higasket PlasticsLtd as its earnings have risen in spite of the market's earnings going into reverse. 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 Anhui Higasket PlasticsLtd

Keen to find out how analysts think Anhui Higasket PlasticsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Anhui Higasket PlasticsLtd?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.4% last year. Still, lamentably EPS has fallen 18% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to expand by 37%, which is noticeably more attractive.

In light of this, it's understandable that Anhui Higasket PlasticsLtd'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.

What We Can Learn From Anhui Higasket PlasticsLtd's P/E?

Despite Anhui Higasket PlasticsLtd's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Anhui Higasket PlasticsLtd'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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Anhui Higasket PlasticsLtd, and understanding 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.