Even With A 27% Surge, Cautious Investors Are Not Rewarding Chongqing Port Co.,Ltd.'s (SHSE:600279) Performance Completely

Chongqing Port Co.,Ltd. (SHSE:600279) shares have continued their recent momentum with a 27% gain in the last month alone. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, Chongqing PortLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.5x, since almost half of all companies in China have P/E ratios greater than 37x and even P/E's higher than 71x 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.

With earnings growth that's exceedingly strong of late, Chongqing PortLtd has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Chongqing PortLtd

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 Chongqing PortLtd's earnings, revenue and cash flow.

Is There Any Growth For Chongqing PortLtd?

The only time you'd be truly comfortable seeing a P/E as depressed as Chongqing PortLtd's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 233% last year. Pleasingly, EPS has also lifted 1,069% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 39% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Chongqing PortLtd's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Chongqing PortLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

We've established that Chongqing PortLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Chongqing PortLtd 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.