Why Investors Shouldn't Be Surprised By Shenzhen Batian Ecotypic Engineering Co., Ltd.'s (SZSE:002170) 25% Share Price Surge

The Shenzhen Batian Ecotypic Engineering Co., Ltd. (SZSE:002170) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 74%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shenzhen Batian Ecotypic Engineering's P/E ratio of 37x, since the median price-to-earnings (or "P/E") ratio in China is also close to 39x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

The earnings growth achieved at Shenzhen Batian Ecotypic Engineering over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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.

View our latest analysis for Shenzhen Batian Ecotypic Engineering

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 Shenzhen Batian Ecotypic Engineering's earnings, revenue and cash flow.

How Is Shenzhen Batian Ecotypic Engineering's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 176% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

It's interesting to note that the rest of the market is similarly expected to grow by 37% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Shenzhen Batian Ecotypic Engineering's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

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

Shenzhen Batian Ecotypic Engineering appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Shenzhen Batian Ecotypic Engineering (1 makes us a bit uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Shenzhen Batian Ecotypic Engineering, 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.