Improved Earnings Required Before Beijing Lier High-temperature Materials Co.,Ltd. (SZSE:002392) Stock's 25% Jump Looks Justified

Despite an already strong run, Beijing Lier High-temperature Materials Co.,Ltd. (SZSE:002392) shares have been powering on, with a gain of 25% in the last thirty days. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Beijing Lier High-temperature MaterialsLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.7x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x 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 so limited.

Recent times have been pleasing for Beijing Lier High-temperature MaterialsLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 out of favour.

View our latest analysis for Beijing Lier High-temperature MaterialsLtd

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Beijing Lier High-temperature MaterialsLtd would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. Still, incredibly EPS has fallen 13% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 29% as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 40% growth forecast for the broader market.

With this information, we can see why Beijing Lier High-temperature MaterialsLtd 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.

The Final Word

Beijing Lier High-temperature MaterialsLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Beijing Lier High-temperature MaterialsLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Beijing Lier High-temperature MaterialsLtd that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.