There's No Escaping Quechen Silicon Chemical Co., Ltd.'s (SHSE:605183) Muted Earnings Despite A 28% Share Price Rise

Quechen Silicon Chemical Co., Ltd. (SHSE:605183) shareholders have had their patience rewarded with a 28% share price jump in the last month. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.2% over the last year.

Although its price has surged higher, Quechen Silicon Chemical may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.6x, since almost half of all companies in China have P/E ratios greater than 30x and even P/E's higher than 55x 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.

Earnings have risen firmly for Quechen Silicon Chemical recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Quechen Silicon Chemical

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Quechen Silicon Chemical will help you shine a light on its historical performance.

How Is Quechen Silicon Chemical's Growth Trending?

In order to justify its P/E ratio, Quechen Silicon Chemical would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. The strong recent performance means it was also able to grow EPS by 83% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 34% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Quechen Silicon Chemical is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Quechen Silicon Chemical's P/E?

The latest share price surge wasn't enough to lift Quechen Silicon Chemical's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Quechen Silicon Chemical revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Quechen Silicon Chemical that you need to be mindful of.

You might be able to find a better investment than Quechen Silicon Chemical. 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.