West China Cement Limited's (HKG:2233) Shares Leap 25% Yet They're Still Not Telling The Full Story

West China Cement Limited (HKG:2233) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 56%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about West China Cement's P/E ratio of 13.4x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 11x. 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.

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West China Cement certainly has been doing a good job lately as it's been growing earnings more 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 West China Cement

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

Is There Some Growth For West China Cement?

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

If we review the last year of earnings growth, the company posted a terrific increase of 48%. However, this wasn't enough as the latest three year period has seen a very unpleasant 61% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 39% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 15% each year growth forecast for the broader market.

With this information, we find it interesting that West China Cement 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.

What We Can Learn From West China Cement's P/E?

West China Cement appears to be back in favour with a solid price jump getting its P/E back in line with 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 West China Cement 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. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about this 1 warning sign we've spotted with West China Cement.

You might be able to find a better investment than West China Cement. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.