Silvery Dragon Prestressed Materials Co.,LTD Tianjin (SHSE:603969) Surges 27% Yet Its Low P/E Is No Reason For Excitement

Silvery Dragon Prestressed Materials Co.,LTD Tianjin (SHSE:603969) shares have continued their recent momentum with a 27% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

Although its price has surged higher, Silvery Dragon Prestressed MaterialsLTD Tianjin may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 27x, 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Silvery Dragon Prestressed MaterialsLTD Tianjin certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Silvery Dragon Prestressed MaterialsLTD Tianjin

Although there are no analyst estimates available for Silvery Dragon Prestressed MaterialsLTD Tianjin, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Silvery Dragon Prestressed MaterialsLTD Tianjin?

There's an inherent assumption that a company should underperform the market for P/E ratios like Silvery Dragon Prestressed MaterialsLTD Tianjin's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 73% last year. The latest three year period has also seen an excellent 31% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 38% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Silvery Dragon Prestressed MaterialsLTD Tianjin's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Silvery Dragon Prestressed MaterialsLTD Tianjin's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of Silvery Dragon Prestressed MaterialsLTD Tianjin revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Silvery Dragon Prestressed MaterialsLTD Tianjin you should know about.

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.