Precision Tsugami (China) Corporation Limited (HKG:1651) Stock Rockets 26% But Many Are Still Ignoring The Company

Explore Precision Tsugami (China)'s Fair Values from the Community and select yours

Precision Tsugami (China) Corporation Limited (HKG:1651) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The annual gain comes to 168% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Precision Tsugami (China)'s price-to-earnings (or "P/E") ratio of 11.2x is worth a mention when the median P/E in Hong Kong is similar at about 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

With earnings growth that's superior to most other companies of late, Precision Tsugami (China) has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Precision Tsugami (China)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Precision Tsugami (China).

Is There Some Growth For Precision Tsugami (China)?

In order to justify its P/E ratio, Precision Tsugami (China) would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 65%. EPS has also lifted 19% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 39% over the next year. With the market only predicted to deliver 21%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Precision Tsugami (China)'s P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Precision Tsugami (China)'s P/E

Its shares have lifted substantially and now Precision Tsugami (China)'s P/E is also back up to the market median. 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 Precision Tsugami (China) currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Precision Tsugami (China) (1 shouldn't be ignored!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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

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.