Optimistic Investors Push Shinelong Automotive Lightweight Application Limited (HKG:1930) Shares Up 33% But Growth Is Lacking

Shinelong Automotive Lightweight Application Limited (HKG:1930) shareholders have had their patience rewarded with a 33% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 9.7% isn't as impressive.

Even after such a large jump in price, it's still not a stretch to say that Shinelong Automotive Lightweight Application's price-to-earnings (or "P/E") ratio of 13x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For example, consider that Shinelong Automotive Lightweight Application's financial performance has been poor lately as its earnings have been in decline. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Shinelong Automotive Lightweight Application

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 Shinelong Automotive Lightweight Application's earnings, revenue and cash flow.

How Is Shinelong Automotive Lightweight Application's Growth Trending?

The only time you'd be comfortable seeing a P/E like Shinelong Automotive Lightweight Application's is when the company's growth is tracking the market closely.

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 22%. The last three years don't look nice either as the company has shrunk EPS by 24% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's somewhat alarming that Shinelong Automotive Lightweight Application's P/E sits in line with the majority of other companies. 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 Shinelong Automotive Lightweight Application's P/E

Shinelong Automotive Lightweight Application's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Shinelong Automotive Lightweight Application 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. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 3 warning signs we've spotted with Shinelong Automotive Lightweight Application (including 1 which is concerning).

If you're unsure about the strength of Shinelong Automotive Lightweight Application'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.