Anhui Fuhuang Steel Structure Co., Ltd. (SZSE:002743) Stock Rockets 39% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Anhui Fuhuang Steel Structure Co., Ltd. (SZSE:002743) shares have been powering on, with a gain of 39% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Anhui Fuhuang Steel Structure's P/E ratio of 33.5x, since the median price-to-earnings (or "P/E") ratio in China is also close to 37x. 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.

As an illustration, earnings have deteriorated at Anhui Fuhuang Steel Structure over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Anhui Fuhuang Steel Structure

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 Anhui Fuhuang Steel Structure's earnings, revenue and cash flow.

Is There Some Growth For Anhui Fuhuang Steel Structure?

There's an inherent assumption that a company should be matching the market for P/E ratios like Anhui Fuhuang Steel Structure's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. The last three years don't look nice either as the company has shrunk EPS by 57% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 40% shows it's an unpleasant look.

With this information, we find it concerning that Anhui Fuhuang Steel Structure is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Bottom Line On Anhui Fuhuang Steel Structure's P/E

Anhui Fuhuang Steel Structure's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Anhui Fuhuang Steel Structure revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Anhui Fuhuang Steel Structure (2 are a bit concerning!) that you need to be mindful of.

If you're unsure about the strength of Anhui Fuhuang Steel Structure's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.