The Market Lifts Sany Heavy Equipment International Holdings Company Limited (HKG:631) Shares 29% But It Can Do More

Sany Heavy Equipment International Holdings Company Limited (HKG:631) shareholders have had their patience rewarded with a 29% share price jump in the last month. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 53% share price drop in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Sany Heavy Equipment International Holdings' price-to-earnings (or "P/E") ratio of 9.6x is worth a mention when the median P/E in Hong Kong is similar at about 10x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Sany Heavy Equipment International Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Sany Heavy Equipment International Holdings

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Is There Some Growth For Sany Heavy Equipment International Holdings?

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 frustrating 12% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 41% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 22% each year over the next three years. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader market.

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

Sany Heavy Equipment International Holdings' 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.

We've established that Sany Heavy Equipment International Holdings 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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Sany Heavy Equipment International Holdings with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.