The CNNC Hua Yuan Titanium Dioxide Co., Ltd (SZSE:002145) share price has done very well over the last month, posting an excellent gain of 27%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.5% over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that CNNC Hua Yuan Titanium Dioxide's price-to-earnings (or "P/E") ratio of 31.3x right now seems quite "middle-of-the-road" compared to the market in China, where the median P/E ratio is around 30x. 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.

With earnings growth that's exceedingly strong of late, CNNC Hua Yuan Titanium Dioxide has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like CNNC Hua Yuan Titanium Dioxide's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 40%. Still, incredibly EPS has fallen 54% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's an unpleasant look.

With this information, we find it concerning that CNNC Hua Yuan Titanium Dioxide is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

What We Can Learn From CNNC Hua Yuan Titanium Dioxide's P/E?

CNNC Hua Yuan Titanium Dioxide's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of CNNC Hua Yuan Titanium Dioxide revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware CNNC Hua Yuan Titanium Dioxide is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

Of course, you might also be able to find a better stock than CNNC Hua Yuan Titanium Dioxide. 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.