Tianyun International Holdings Limited's (HKG:6836) Price Is Right But Growth Is Lacking After Shares Rocket 30%

The Tianyun International Holdings Limited (HKG:6836) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 38% in the last year.

In spite of the firm bounce in price, Tianyun International Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.4x, since almost half of all companies in Hong Kong have P/E ratios greater than 12x and even P/E's higher than 25x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been more advantageous for Tianyun International Holdings as its earnings haven't fallen as much as the rest of the market. One possibility is that the P/E is low because investors think this relatively better earnings performance might be about to deteriorate significantly. You'd much rather the company wasn't bleeding earnings if you still believe in the business. In saying that, existing shareholders probably aren't pessimistic about the share price if the company's earnings continue outplaying the market.

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Does Growth Match The Low P/E?

Tianyun International Holdings' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 3.2% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 23% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 8.3% per annum during the coming three years according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 18% per year, which is noticeably more attractive.

In light of this, it's understandable that Tianyun International Holdings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Tianyun International Holdings' P/E

Despite Tianyun International Holdings' shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Tianyun International Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Tianyun International Holdings.

If these risks are making you reconsider your opinion on Tianyun International Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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