Even With A 32% Surge, Cautious Investors Are Not Rewarding Triumph New Energy Company Limited's (HKG:1108) Performance Completely

Triumph New Energy Company Limited (HKG:1108) shares have continued their recent momentum with a 32% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Triumph New Energy's price-to-earnings (or "P/E") ratio of 9.6x right now seems quite "middle-of-the-road" compared to the market in Hong Kong, where the median P/E ratio is around 9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Triumph New Energy has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.

See our latest analysis for Triumph New Energy

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Triumph New Energy.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Triumph New Energy's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 80%. The latest three year period has also seen an excellent 203% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 40% as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 23% growth forecast for the broader market.

In light of this, it's curious that Triumph New Energy's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Triumph New Energy appears to be back in favour with a solid price jump getting its P/E back in line with 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 Triumph New Energy currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Triumph New Energy.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.