Investors Still Aren't Entirely Convinced By Asymchem Laboratories (Tianjin) Co., Ltd.'s (SZSE:002821) Earnings Despite 25% Price Jump

Asymchem Laboratories (Tianjin) Co., Ltd. (SZSE:002821) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 50% in the last twelve months.

Although its price has surged higher, Asymchem Laboratories (Tianjin) may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 25x, since almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 54x 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 limited.

Asymchem Laboratories (Tianjin) has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Asymchem Laboratories (Tianjin)

Keen to find out how analysts think Asymchem Laboratories (Tianjin)'s future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Asymchem Laboratories (Tianjin)'s is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 66% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 23% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 21% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

In light of this, it's peculiar that Asymchem Laboratories (Tianjin)'s P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Asymchem Laboratories (Tianjin)'s P/E?

The latest share price surge wasn't enough to lift Asymchem Laboratories (Tianjin)'s P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Asymchem Laboratories (Tianjin)'s analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Asymchem Laboratories (Tianjin) that you should be aware of.

If you're unsure about the strength of Asymchem Laboratories (Tianjin)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.