Further Upside For Tianshan Aluminum Group Co.,Ltd (SZSE:002532) Shares Could Introduce Price Risks After 25% Bounce

Tianshan Aluminum Group Co.,Ltd (SZSE:002532) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.0% over the last year.

In spite of the firm bounce in price, Tianshan Aluminum GroupLtd's price-to-earnings (or "P/E") ratio of 17.5x 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 32x and even P/E's above 59x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Tianshan Aluminum GroupLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Tianshan Aluminum GroupLtd's Growth Trending?

In order to justify its P/E ratio, Tianshan Aluminum GroupLtd would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. This means it has also seen a slide in earnings over the longer-term as EPS is down 27% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 63% over the next year. Meanwhile, the rest of the market is forecast to only expand by 37%, which is noticeably less attractive.

With this information, we find it odd that Tianshan Aluminum GroupLtd is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Tianshan Aluminum GroupLtd's P/E

Despite Tianshan Aluminum GroupLtd's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Tianshan Aluminum GroupLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Tianshan Aluminum GroupLtd (1 can't be ignored!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.