SUFA Technology Industry Co., Ltd., CNNC (SZSE:000777) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 39%.

In spite of the firm bounce in price, SUFA Technology Industry CNNC may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 24.7x, since almost half of all companies in China have P/E ratios greater than 33x and even P/E's higher than 60x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, SUFA Technology Industry CNNC has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is SUFA Technology Industry CNNC's Growth Trending?

SUFA Technology Industry CNNC's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 132% gain to the company's bottom line. The latest three year period has also seen an excellent 164% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 15% over the next year. That's shaping up to be materially lower than the 40% growth forecast for the broader market.

In light of this, it's understandable that SUFA Technology Industry CNNC's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

SUFA Technology Industry CNNC'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.

We've established that SUFA Technology Industry CNNC maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for SUFA Technology Industry CNNC that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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