Silvery Dragon Prestressed Materials Co.,LTD Tianjin (SHSE:603969) Shares Fly 39% But Investors Aren't Buying For Growth

Silvery Dragon Prestressed Materials Co.,LTD Tianjin (SHSE:603969) shares have had a really impressive month, gaining 39% after a shaky period beforehand. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

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 25.2x, since almost half of all companies in China have P/E ratios greater than 32x and even P/E's higher than 62x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's exceedingly strong of late, Silvery Dragon Prestressed MaterialsLTD Tianjin has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Silvery Dragon Prestressed MaterialsLTD Tianjin

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Silvery Dragon Prestressed MaterialsLTD Tianjin's earnings, revenue and cash flow.

Is There Any Growth For Silvery Dragon Prestressed MaterialsLTD Tianjin?

Silvery Dragon Prestressed MaterialsLTD Tianjin's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 47% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 4.1% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 37% shows it's an unpleasant look.

With this information, we are not surprised that Silvery Dragon Prestressed MaterialsLTD Tianjin is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift Silvery Dragon Prestressed MaterialsLTD Tianjin's P/E close to the market median. 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 Silvery Dragon Prestressed MaterialsLTD Tianjin maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Silvery Dragon Prestressed MaterialsLTD Tianjin (of which 1 is significant!) you should know about.

If these risks are making you reconsider your opinion on Silvery Dragon Prestressed MaterialsLTD Tianjin, 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.