Sichuan Fulin Transportation Group Co., Ltd. (SZSE:002357) Held Back By Insufficient Growth Even After Shares Climb 28%

Sichuan Fulin Transportation Group Co., Ltd. (SZSE:002357) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.1% over the last year.

Although its price has surged higher, Sichuan Fulin Transportation Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.8x, since almost half of all companies in China have P/E ratios greater than 29x and even P/E's higher than 55x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Sichuan Fulin Transportation Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, 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 Sichuan Fulin Transportation Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sichuan Fulin Transportation Group will help you shine a light on its historical performance.

Is There Any Growth For Sichuan Fulin Transportation Group?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Sichuan Fulin Transportation Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 140%. The latest three year period has also seen an excellent 62% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Sichuan Fulin Transportation Group's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shares in Sichuan Fulin Transportation Group are going to need a lot more upward momentum to get the company's P/E out of its slump. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Sichuan Fulin Transportation Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Sichuan Fulin Transportation Group that you need to take into consideration.

You might be able to find a better investment than Sichuan Fulin Transportation Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com