Henan Shenhuo Coal Industary and Electricity Power Corporation Limited (SZSE:000933) Shares Fly 29% But Investors Aren't Buying For Growth

Henan Shenhuo Coal Industary and Electricity Power Corporation Limited (SZSE:000933) shares have continued their recent momentum with a 29% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 34%.

Although its price has surged higher, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 31x, you may still consider Henan Shenhuo Coal Industary and Electricity Power as a highly attractive investment with its 9.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Henan Shenhuo Coal Industary and Electricity Power could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Henan Shenhuo Coal Industary and Electricity Power

Keen to find out how analysts think Henan Shenhuo Coal Industary and Electricity Power's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Henan Shenhuo Coal Industary and Electricity Power?

The only time you'd be truly comfortable seeing a P/E as depressed as Henan Shenhuo Coal Industary and Electricity Power's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 1,292% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 4.8% per annum during the coming three years according to the nine analysts following the company. With the market predicted to deliver 20% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Henan Shenhuo Coal Industary and Electricity Power is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Henan Shenhuo Coal Industary and Electricity Power's P/E?

Even after such a strong price move, Henan Shenhuo Coal Industary and Electricity Power's P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Henan Shenhuo Coal Industary and Electricity Power's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Henan Shenhuo Coal Industary and Electricity Power that you should be aware of.

If these risks are making you reconsider your opinion on Henan Shenhuo Coal Industary and Electricity Power, 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.