A Piece Of The Puzzle Missing From Zhejiang Tengy Environmental Technology Co., Ltd's (HKG:1527) 62% Share Price Climb

Zhejiang Tengy Environmental Technology Co., Ltd (HKG:1527) shareholders have had their patience rewarded with a 62% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 97% in the last year.

Although its price has surged higher, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Zhejiang Tengy Environmental Technology as a highly attractive investment with its 3.2x P/E ratio. 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.

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With earnings growth that's exceedingly strong of late, Zhejiang Tengy Environmental Technology has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Zhejiang Tengy Environmental Technology

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 Zhejiang Tengy Environmental Technology's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 98%. The strong recent performance means it was also able to grow EPS by 311% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 19% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Zhejiang Tengy Environmental Technology is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Zhejiang Tengy Environmental Technology's P/E

Shares in Zhejiang Tengy Environmental Technology are going to need a lot more upward momentum to get the company's P/E out of its slump. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Zhejiang Tengy Environmental Technology revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zhejiang Tengy Environmental Technology that you should be aware of.

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.