Xinjiang Tianfu Energy Co., Ltd. (SHSE:600509) Stock Rockets 34% But Many Are Still Ignoring The Company

Xinjiang Tianfu Energy Co., Ltd. (SHSE:600509) shares have continued their recent momentum with a 34% gain in the last month alone. Looking further back, the 12% 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, Xinjiang Tianfu Energy's price-to-earnings (or "P/E") ratio of 18.6x might still make it look like a buy right now compared to the market in China, where around half of the companies have P/E ratios above 34x and even P/E's above 67x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Xinjiang Tianfu Energy has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Xinjiang Tianfu Energy

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

How Is Xinjiang Tianfu Energy's Growth Trending?

Xinjiang Tianfu Energy's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. Still, the latest three year period has seen an excellent 254% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 41% over the next year. With the market only predicted to deliver 37%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Xinjiang Tianfu Energy is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Xinjiang Tianfu Energy's P/E

Despite Xinjiang Tianfu Energy's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Xinjiang Tianfu Energy currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Xinjiang Tianfu Energy (of which 1 makes us a bit uncomfortable!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.