Jy Gas Limited (HKG:1407) Held Back By Insufficient Growth Even After Shares Climb 28%

Despite an already strong run, Jy Gas Limited (HKG:1407) shares have been powering on, with a gain of 28% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 10.0% isn't as impressive.

Although its price has surged higher, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Jy Gas as an attractive investment with its 7.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Earnings have risen firmly for Jy Gas recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Jy Gas

Although there are no analyst estimates available for Jy Gas, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Jy Gas' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Jy Gas' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. Still, incredibly EPS has fallen 67% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 19% 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 Jy Gas 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Jy Gas' P/E

Jy Gas' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Jy Gas maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for Jy Gas (1 is potentially serious!) that you need to take into consideration.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.