Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6) Soars 28% But It's A Story Of Risk Vs Reward

The Yangzijiang Shipbuilding (Holdings) Ltd. (SGX:BS6) share price has done very well over the last month, posting an excellent gain of 28%. Looking back a bit further, it's encouraging to see the stock is up 79% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Yangzijiang Shipbuilding (Holdings)'s P/E ratio of 11.4x, since the median price-to-earnings (or "P/E") ratio in Singapore is also close to 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been pleasing for Yangzijiang Shipbuilding (Holdings) as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, 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.

Check out our latest analysis for Yangzijiang Shipbuilding (Holdings)

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Is There Some Growth For Yangzijiang Shipbuilding (Holdings)?

There's an inherent assumption that a company should be matching the market for P/E ratios like Yangzijiang Shipbuilding (Holdings)'s to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 57% last year. The latest three year period has also seen an excellent 61% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 11% each year over the next three years. With the market only predicted to deliver 8.5% per annum, the company is positioned for a stronger earnings result.

In light of this, it's curious that Yangzijiang Shipbuilding (Holdings)'s P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Yangzijiang Shipbuilding (Holdings)'s P/E

Yangzijiang Shipbuilding (Holdings) appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

Our examination of Yangzijiang Shipbuilding (Holdings)'s analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. 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.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Yangzijiang Shipbuilding (Holdings) with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.