Tianshan Aluminum Group Co.,Ltd (SZSE:002532) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Tianshan Aluminum Group Co.,Ltd (SZSE:002532) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 31%.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Tianshan Aluminum GroupLtd as a highly attractive investment with its 12.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Tianshan Aluminum GroupLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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.

See our latest analysis for Tianshan Aluminum GroupLtd

Keen to find out how analysts think Tianshan Aluminum GroupLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Tianshan Aluminum GroupLtd?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Tianshan Aluminum GroupLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 98%. However, this wasn't enough as the latest three year period has seen a very unpleasant 5.8% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the seven analysts watching the company. With the market predicted to deliver 19% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Tianshan Aluminum GroupLtd 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

Even after such a strong price move, Tianshan Aluminum GroupLtd's P/E still trails the rest of the market significantly. 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.

We've established that Tianshan Aluminum GroupLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Tianshan Aluminum GroupLtd.

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.

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.