Tianjin Development Holdings Limited's (HKG:882) Share Price Boosted 29% But Its Business Prospects Need A Lift Too

Tianjin Development Holdings Limited (HKG:882) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

Even after such a large jump in price, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Tianjin Development Holdings as a highly attractive investment with its 5.3x P/E ratio. 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 Tianjin Development Holdings over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Tianjin Development 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 Tianjin Development Holdings' earnings, revenue and cash flow.

How Is Tianjin Development Holdings' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 10% in total. 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Tianjin Development Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Tianjin Development Holdings' recent share price jump still sees its P/E sitting firmly flat on the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Tianjin Development Holdings revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Tianjin Development Holdings that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.