Shenzhen Batian Ecotypic Engineering Co., Ltd. (SZSE:002170) Stock Rockets 26% But Many Are Still Ignoring The Company

Shenzhen Batian Ecotypic Engineering Co., Ltd. (SZSE:002170) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

Although its price has surged higher, Shenzhen Batian Ecotypic Engineering's price-to-earnings (or "P/E") ratio of 20.1x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 30x and even P/E's above 55x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Shenzhen Batian Ecotypic Engineering certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 Shenzhen Batian Ecotypic Engineering

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

Is There Any Growth For Shenzhen Batian Ecotypic Engineering?

There's an inherent assumption that a company should underperform the market for P/E ratios like Shenzhen Batian Ecotypic Engineering's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 117% last year. The latest three year period has also seen an excellent 307% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 41% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Shenzhen Batian Ecotypic Engineering is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Shenzhen Batian Ecotypic Engineering's P/E?

The latest share price surge wasn't enough to lift Shenzhen Batian Ecotypic Engineering's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Shenzhen Batian Ecotypic Engineering currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Shenzhen Batian Ecotypic Engineering (1 is concerning!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Shenzhen Batian Ecotypic Engineering. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.