China Shuifa Singyes Energy Holdings Limited (HKG:750) Looks Just Right With A 26% Price Jump

China Shuifa Singyes Energy Holdings Limited (HKG:750) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 28%.

After such a large jump in price, China Shuifa Singyes Energy Holdings' price-to-earnings (or "P/E") ratio of 13.3x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 8x and even P/E's below 5x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

While the market has experienced earnings growth lately, China Shuifa Singyes Energy Holdings' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for China Shuifa Singyes Energy Holdings

Keen to find out how analysts think China Shuifa Singyes Energy Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

In order to justify its P/E ratio, China Shuifa Singyes Energy Holdings would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 59% per annum during the coming three years according to the two analysts following the company. With the market only predicted to deliver 16% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that China Shuifa Singyes Energy Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The large bounce in China Shuifa Singyes Energy Holdings' shares has lifted the company's P/E to a fairly high level. 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.

As we suspected, our examination of China Shuifa Singyes Energy Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for China Shuifa Singyes Energy Holdings (1 is significant!) that you should be aware of.

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 P/E ratio below 20x).

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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.