A Piece Of The Puzzle Missing From Sany Heavy Equipment International Holdings Company Limited's (HKG:631) 31% Share Price Climb

Sany Heavy Equipment International Holdings Company Limited (HKG:631) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Sany Heavy Equipment International Holdings' price-to-earnings (or "P/E") ratio of 8.5x 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.

Recent times have been advantageous for Sany Heavy Equipment International Holdings as its earnings have been rising faster than most other companies. 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.

See our latest analysis for Sany Heavy Equipment International Holdings

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How Is Sany Heavy Equipment International Holdings' Growth Trending?

The only time you'd be comfortable seeing a P/E like Sany Heavy Equipment International Holdings' is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. The latest three year period has also seen an excellent 80% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 23% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 16% each year, which is noticeably less attractive.

With this information, we find it interesting that Sany Heavy Equipment International Holdings is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Sany Heavy Equipment International Holdings' P/E

Its shares have lifted substantially and now Sany Heavy Equipment International Holdings' P/E is also back up to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Sany Heavy Equipment International Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. 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.

You always need to take note of risks, for example - Sany Heavy Equipment International Holdings has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Sany Heavy Equipment International Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.