Despite an already strong run, Tianjin Binhai Teda Logistics (Group) Corporation Limited (HKG:8348) shares have been powering on, with a gain of 41% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.
Although its price has surged higher, given about half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") above 10x, you may still consider Tianjin Binhai Teda Logistics (Group) as an attractive investment with its 7.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
For instance, Tianjin Binhai Teda Logistics (Group)'s receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Is There Any Growth For Tianjin Binhai Teda Logistics (Group)?
There's an inherent assumption that a company should underperform the market for P/E ratios like Tianjin Binhai Teda Logistics (Group)'s to be considered reasonable.
Retrospectively, the last year delivered a frustrating 7.5% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably less attractive on an annualised basis.
With this information, we can see why Tianjin Binhai Teda Logistics (Group) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Tianjin Binhai Teda Logistics (Group)'s P/E
Despite Tianjin Binhai Teda Logistics (Group)'s shares building up a head of steam, its P/E still lags most other companies. 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 Tianjin Binhai Teda Logistics (Group) revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 3 warning signs for Tianjin Binhai Teda Logistics (Group) you should know about.
Of course, you might also be able to find a better stock than Tianjin Binhai Teda Logistics (Group). 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.
