The Market Lifts Shanghai Putailai New Energy Technology Co.,Ltd. (SHSE:603659) Shares 25% But It Can Do More

Despite an already strong run, Shanghai Putailai New Energy Technology Co.,Ltd. (SHSE:603659) shares have been powering on, with a gain of 25% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 35x, you may still consider Shanghai Putailai New Energy TechnologyLtd as an attractive investment with its 25.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for Shanghai Putailai New Energy TechnologyLtd as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Shanghai Putailai New Energy TechnologyLtd

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

In order to justify its P/E ratio, Shanghai Putailai New Energy TechnologyLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 41%. As a result, earnings from three years ago have also fallen 4.9% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 44% over the next year. That's shaping up to be similar to the 41% growth forecast for the broader market.

With this information, we find it odd that Shanghai Putailai New Energy TechnologyLtd 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 Shanghai Putailai New Energy TechnologyLtd's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Shanghai Putailai New Energy TechnologyLtd's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Shanghai Putailai New Energy TechnologyLtd that you should be aware of.

If you're unsure about the strength of Shanghai Putailai New Energy TechnologyLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.