Those holding Titan Wind Energy (Suzhou) Co.,Ltd (SZSE:002531) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.
In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 30x, you may still consider Titan Wind Energy (Suzhou)Ltd as an attractive investment with its 19.7x 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.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Titan Wind Energy (Suzhou)Ltd has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Does Growth Match The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like Titan Wind Energy (Suzhou)Ltd's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. Still, incredibly EPS has fallen 5.5% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 77% as estimated by the nine analysts watching the company. With the market only predicted to deliver 41%, the company is positioned for a stronger earnings result.
With this information, we find it odd that Titan Wind Energy (Suzhou)Ltd is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Titan Wind Energy (Suzhou)Ltd's P/E
Despite Titan Wind Energy (Suzhou)Ltd's shares building up a head of steam, its P/E still lags most other companies. 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.
We've established that Titan Wind Energy (Suzhou)Ltd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
Plus, you should also learn about these 2 warning signs we've spotted with Titan Wind Energy (Suzhou)Ltd (including 1 which is potentially serious).
Of course, you might also be able to find a better stock than Titan Wind Energy (Suzhou)Ltd. 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.