TIL Enviro Limited's (HKG:1790) Shares Climb 34% But Its Business Is Yet to Catch Up

TIL Enviro Limited (HKG:1790) shareholders have had their patience rewarded with a 34% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 10% is also fairly reasonable.

Even after such a large jump in price, there still wouldn't be many who think TIL Enviro's price-to-earnings (or "P/E") ratio of 10.2x is worth a mention when the median P/E in Hong Kong is similar at about 9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

TIL Enviro has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

View our latest analysis for TIL Enviro

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 TIL Enviro's earnings, revenue and cash flow.

Is There Some Growth For TIL Enviro?

The only time you'd be comfortable seeing a P/E like TIL Enviro's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.5% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 42% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this information, we find it concerning that TIL Enviro is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Its shares have lifted substantially and now TIL Enviro's P/E is also back up to the market median. 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 TIL Enviro revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 4 warning signs for TIL Enviro (2 shouldn't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than TIL Enviro. 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.