Yechiu Metal Recycling (China) Ltd. (SHSE:601388) shares have had a really impressive month, gaining 42% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.
In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Yechiu Metal Recycling (China)'s P/E ratio of 30.4x, since the median price-to-earnings (or "P/E") ratio in China is also close to 32x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
While the market has experienced earnings growth lately, Yechiu Metal Recycling (China)'s earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
Does Growth Match The P/E?
In order to justify its P/E ratio, Yechiu Metal Recycling (China) would need to produce growth that's similar to the market.
Retrospectively, the last year delivered a frustrating 56% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 38% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 83% during the coming year according to the lone analyst following the company. With the market only predicted to deliver 40%, the company is positioned for a stronger earnings result.
In light of this, it's curious that Yechiu Metal Recycling (China)'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 Yechiu Metal Recycling (China)'s P/E
Yechiu Metal Recycling (China)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Yechiu Metal Recycling (China)'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.
Plus, you should also learn about these 2 warning signs we've spotted with Yechiu Metal Recycling (China).
Of course, you might also be able to find a better stock than Yechiu Metal Recycling (China). 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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