BII Railway Transportation Technology Holdings Company Limited's (HKG:1522) Shares Bounce 28% But Its Business Still Trails The Market

Explore BII Railway Transportation Technology Holdings's Fair Values from the Community and select yours

The BII Railway Transportation Technology Holdings Company Limited (HKG:1522) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 33%.

Although its price has surged higher, BII Railway Transportation Technology Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.8x, since almost half of all companies in Hong Kong have P/E ratios greater than 13x and even P/E's higher than 28x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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As an illustration, earnings have deteriorated at BII Railway Transportation Technology Holdings over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for BII Railway Transportation Technology Holdings

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 BII Railway Transportation Technology Holdings' earnings, revenue and cash flow.

How Is BII Railway Transportation Technology Holdings' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like BII Railway Transportation Technology Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.8% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 11% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 21% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that BII Railway Transportation Technology Holdings is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From BII Railway Transportation Technology Holdings' P/E?

BII Railway Transportation Technology Holdings' recent share price jump still sees its P/E sitting firmly flat on the ground. 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 BII Railway Transportation Technology Holdings revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for BII Railway Transportation Technology Holdings with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than BII Railway Transportation Technology Holdings. 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.