Further Upside For China Yuchai International Limited (NYSE:CYD) Shares Could Introduce Price Risks After 27% Bounce

Those holding China Yuchai International Limited (NYSE:CYD) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, China Yuchai International may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.4x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's superior to most other companies of late, China Yuchai International has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for China Yuchai International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China Yuchai International.

Is There Any Growth For China Yuchai International?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 18% last year. As a result, it also grew EPS by 29% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 38% over the next year. With the market only predicted to deliver 13%, the company is positioned for a stronger earnings result.

With this information, we find it odd that China Yuchai International is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

China Yuchai International's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of China Yuchai International's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for China Yuchai International that you need to take into consideration.

If you're unsure about the strength of China Yuchai International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.