What CNNC Hua Yuan Titanium Dioxide Co., Ltd's (SZSE:002145) 38% Share Price Gain Is Not Telling You

The CNNC Hua Yuan Titanium Dioxide Co., Ltd (SZSE:002145) share price has done very well over the last month, posting an excellent gain of 38%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, there still wouldn't be many who think CNNC Hua Yuan Titanium Dioxide's price-to-earnings (or "P/E") ratio of 33.7x is worth a mention when the median P/E in China is similar at about 34x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for CNNC Hua Yuan Titanium Dioxide as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.

Check out our latest analysis for CNNC Hua Yuan Titanium Dioxide

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 CNNC Hua Yuan Titanium Dioxide's earnings, revenue and cash flow.

How Is CNNC Hua Yuan Titanium Dioxide's Growth Trending?

In order to justify its P/E ratio, CNNC Hua Yuan Titanium Dioxide would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 54% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that CNNC Hua Yuan Titanium Dioxide is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

What We Can Learn From CNNC Hua Yuan Titanium Dioxide's P/E?

CNNC Hua Yuan Titanium Dioxide's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of CNNC Hua Yuan Titanium Dioxide revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for CNNC Hua Yuan Titanium Dioxide (1 doesn't sit too well with us!) that you need to take into consideration.

If these risks are making you reconsider your opinion on CNNC Hua Yuan Titanium Dioxide, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.