There's No Escaping Orinko Advanced Plastics Co.,LTD's (SHSE:688219) Muted Earnings Despite A 30% Share Price Rise

Orinko Advanced Plastics Co.,LTD (SHSE:688219) shares have continued their recent momentum with a 30% gain in the last month alone. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Orinko Advanced PlasticsLTD may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 29.6x, since almost half of all companies in China have P/E ratios greater than 38x and even P/E's higher than 74x 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.

Recent times have been quite advantageous for Orinko Advanced PlasticsLTD as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Orinko Advanced PlasticsLTD

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 Orinko Advanced PlasticsLTD's earnings, revenue and cash flow.

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

The only time you'd be truly comfortable seeing a P/E as low as Orinko Advanced PlasticsLTD's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 52% last year. The strong recent performance means it was also able to grow EPS by 127% in total over the last three years. 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.

With this information, we can see why Orinko Advanced PlasticsLTD 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.

The Key Takeaway

The latest share price surge wasn't enough to lift Orinko Advanced PlasticsLTD's P/E close to the market median. 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.

We've established that Orinko Advanced PlasticsLTD maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Orinko Advanced PlasticsLTD (including 1 which is a bit concerning).

If you're unsure about the strength of Orinko Advanced PlasticsLTD'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.