Silvery Dragon Prestressed Materials Co.,LTD Tianjin (SHSE:603969) shares have continued their recent momentum with a 27% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 38x, you may still consider Silvery Dragon Prestressed MaterialsLTD Tianjin as an attractive investment with its 27x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Silvery Dragon Prestressed MaterialsLTD Tianjin as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Silvery Dragon Prestressed MaterialsLTD Tianjin's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Silvery Dragon Prestressed MaterialsLTD Tianjin's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 73%. The strong recent performance means it was also able to grow EPS by 31% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 38% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Silvery Dragon Prestressed MaterialsLTD Tianjin's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Silvery Dragon Prestressed MaterialsLTD Tianjin's P/E

Silvery Dragon Prestressed MaterialsLTD Tianjin's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Silvery Dragon Prestressed MaterialsLTD Tianjin revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Silvery Dragon Prestressed MaterialsLTD Tianjin, and understanding should be part of your investment process.

If you're unsure about the strength of Silvery Dragon Prestressed MaterialsLTD Tianjin'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.